Preamble

The House met at Half past Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

Oral Answers to Questions — EMPLOYMENT

Night Baking

Mr. A. Evans: asked the Minister of Labour if he is aware that nearly a year has passed since the Government accepted in principle the recommendations of the Rees Committee on Night Baking, and promised legislation; that this further delay is causing dissatisfaction among master bakers and journeymen; and if he will now table his proposals.

Mr. Willey: asked the Minister of Labour whether he will make a further statement on the action he proposes to take upon the recommendations of the Committee on Night Baking.

The Minister of Labour (Sir Walter Monckton): As already indicated, I am anxious to proceed with this as quickly as possible. My Department will shortly be discussing detailed proposals with the trade unions and employers' organisations, and I hope it will be possible to make early progress.

Mr. Evans: Would the right hon. and learned Gentleman agree that a large majority of the House would like this matter dealt with quite soon?

Sir W. Monckton: I am one of them.

Mr. Evans: Would the right hon. and learned Gentleman so inform the Prime Minister and the Leader of the House?

Sir W. Monckton: They are both aware of it.

Mr. Willey: Would the right hon. and learned Gentleman accept it from me that we are delighted that he is so anxious to get this Measure on the Statute Book,

and that he can rely on our support to get it there as soon as possible?

Sir W. Monckton: I am obliged to the hon. Member.

Disabled Workers, Chester-le-Street

Mr. Bartley: asked the Minister of Labour the number of disabled unemployed persons signing the register at Chester-le-Street, Birtley and Washington employment exchanges at the most recent convenient date, showing the men and women separately; and what steps he is taking to provide employment for these persons and other unemployed persons in those areas.

Sir W. Monckton: At 18th May, 1953, 50 men and one woman registered as disabled persons were registered as unemployed at Chester-le-Street, 22 men and four women at Birtley and 18 men and three women at Washington station. The districts concerned are part of the North-East Coast Development area and efforts continue to be made to encourage the introduction of fresh industry there.
In addition my local officers will continue to do their best to find suitable employment for these persons.

Mr. Bartley: Is the Minister satisfied that there are early prospects of these disabled unemployed persons being provided with employment in the areas mentioned in my Question?

Sir W. Monckton: It is difficult to state the prospects of early employment for all of them. The position is a little better than it was a year ago, but there is much still to be done, and I am constantly in touch with my right hon. Friend the President of the Board of Trade upon whom primarily rests the responsibility for the Development Areas.

Mr. Bartley: Would the right hon. and learned Gentleman agree that, despite what he says about the position being a little better, the number of females unemployed has increased recently?

Sir W. Monckton: Not the disabled female unemployed.

Mr. J. Griffiths: Would the right hon. and learned Gentleman make further examination into the problem, which continues to be a very serious one—that a large number of disabled men are


capable of a good deal of work but that no employment is available for them in these areas?

Sir W. Monckton: I have had that situation in mind, and I shall bear it in mind again, in view of what the right hon. Gentleman has asked.

Retail Prices Index

Mr. Fletcher-Cooke: asked the Minister of Labour which of the items that constitute the cost-of-living index were mainly responsible for the recent fall therein.

Sir W. Monckton: The fall in the Interim Index of Retail Prices in May was mainly due to seasonal reductions in the prices of milk and coal, lower prices for fish and reductions in the prices of many appliances, floor coverings and miscellaneous goods following a reduction in the rates of Purchase Tax.

Mr. Fletcher-Cooke: Is my right hon. and learned Friend aware that the fall in the prices of the latter items which he has mentioned, due to the reduction in Purchase Tax, has brought widespread satisfaction throughout the country with the Budget of the Chancellor of the Exchequer?

Dock Workers

Mr. Fletcher-Cooke: asked the Minister of Labour what percentage of the dock workers who have been out of work for more than four weeks consist of men over the age of 65.

Sir W. Monckton: I regret that this information is not readily available and could only be obtained after considerable research.

Mr. Fletcher-Cooke: Will my right hon. and learned Friend persist in trying to find some means by which these very elderly workers can be taken off the register and brought where they should be—within the normal national system of dealing with the aged?

Sir W. Monckton: I am aware of the difficulty in this particular regard, but I would inform the House that the figures of those merely getting attendance money have in the last few weeks been very low because I am happy to say that work at the docks is very much heavier than it was in months past.

Mr. Lewis: Will the right hon. and learned Gentleman consult with the Joint Industrial Council and the trade unions concerned and not take any action until they have had a chance to discuss the matter?

Sir W. Monckton: I should not dream of trying to take action without first informing the National Dock Labour Board, whose primary task it is, and we have always been careful to get in touch with both sides in industry.

Sir H. Williams: Why does Her Majesty's Government get rid of most people at the age of 65 and give no consideration to those over 65?

Sir W. Monckton: I can assure my hon. Friend that we give a great deal of consideration to those over 65, and we are earnestly engaged in trying to help them now.

Mr. Awbery: Is the right hon. and learned Gentleman aware that these men over 65 years old are experienced and skilled in the handling of cargoes, and remained on to help the Dock Labour Board when the demand for them arose?

Sir W. Monckton: I am well aware that in spite of their age people over 65, as I have seen myself in the docks, can do admirable work, and I hope that all employers will notice it.

Oral Answers to Questions — SCOTLAND

Adult Education

Mr. Grimond: asked the Secretary of State for Scotland if he will appoint a committee to inquire into adult education in Scotland.

The Joint Under-Secretary of State for Scotland (Mr. Henderson Stewart): No, Sir. The Advisory Council on Education in Scotland considered adult education as part of their remit on further education. Their report was published last year, and my right hon. Friend has made new grant Regulations and a new Further Education Code which, among other things, give effect to their recommendations about adult education. He does not consider that any further inquiry is necessary at present.

Mr. Grimond: While appreciating what has been done and the reports that have


been made, may I ask the hon. Gentleman whether he agrees that there is a great opportunity of extending adult education in Scotland, and whether at this time, when adult education is under review in England, it would be well to take a fresh view of it in Scotland at the same time?

Mr. Stewart: I do not think it is necessary that we should take a fresh view, because we have only recently had a fresh recommendation. We are fully aware of the need, and we share the hon. Gentleman's view, and we are doing everything we can to extend adult education.

Electricity Generation (Peat Burning)

Sir David Robertson: asked the Secretary of State for Scotland why the project of the North of Scotland Hydro-Electric Board for the generation of electricity from peat continues to be delayed.

Mr. Henderson Stewart: There has been no undue delay. As my hon. Friend is aware, successful experiments have been carried out in the burning of peat in gas turbines. Sir Edward Appleton's Committee have now recommended that the North of Scotland Hydro-Electric Board should receive financial assistance through the Development Fund to establish an experimental peat-burning station in Caithness. This proposal is being carefully considered, and I hope that an early decision may be reached.

Sir D. Robertson: Is it not a fact that all these decisions by the North of Scotland Hydro-Electric Board, by Mr. Tom Johnston, the enthusiastic Chairman, by Sir Edward Appleton's Committee and by John Brown and Company were made a long time ago—some years ago—and that there has been a very serious delay? Will my hon. Friend do something to bring it to an end, because we urgently want the work and wages in Caithness?

Mr. Stewart: First of all, the capital cost of this project is a very large sum and could not be approved without very careful consideration. All that is being done now, and I assure my hon. Friend that we at the Scottish Office are most anxious to get a decision.

Mr. McNeil: Would the hon. Gentleman not agree that the scientists and administrators concerned having approved the project nothing can stop the Gov-

ernment finding the funds for a pilot plant to be set up on the site and for further investigation directed to the huge by-products in the form of the agricultural growth that we may expect from the development of such a plant?

Mr. Stewart: We are fully aware of the potentialities, but the capital cost is a very considerable sum, and it has, as the right hon. Gentleman knows, to be worked out what proportion should be for this and that, and so on. I assure the House that we are doing our best to get a decision.

Mr. McNeil: Would the hon. Gentleman tell us what kind of capital sum he thinks is involved in a project for a pilot plant for Caithness?

Mr. Stewart: Something of the order of £500,000.

Mr. McNeil: Would the hon. Gentleman not agree that since relief has been given to the extent of £45 million or £50 million in taxation in the present Budget it is utterly disgraceful that this project should be hung up for the approval of £500,000?

Mr. Stewart: The right hon. Gentleman is not in a position to call this project disgraceful. It is not a new one. It is an old project. We have the duty of bringing it to fruition, and I am saying that we are doing our best to do that.

Blown Timber (Removal)

Sir D. Robertson: asked the Secretary of State for Scotland if he is aware that Sections 2 and 3 of the Forestry Act, 1951, contain no reference to windblown timber; and, in view of the illegal action of the Forestry Commission in requiring conditions for removing windblown timber in reliance upon these provisions, if he will now instruct the Commission to issue unconditional licences forthwith.

Mr. Henderson Stewart: The Forestry Commissioners are proceeding on the view that windblown trees in general can properly be dealt with as growing trees under the statutory provisions in question, and representatives of woodland owners have accepted that the Commission should proceed in this manner. My right hon. Friend does not propose to ask the Commissioners to alter their existing practice.

Sir D. Robertson: Is it not a fact that my Question deals with the law, and not with the view of officials of any Government Department? Is my hon. Friend prepared to spend the taxpayers' money in legal proceedings against patriotic woodland growers, who for generations have served their country so well, at a time of financial disaster for them? Is it not the duty of the Government to secure their voluntary co-operation instead of trying to bounce them by compulsion?

Mr. Stewart: What is the law is not for me or my hon. Friend to declare. That is a matter for the courts. This is not really so much a matter of law as a matter of practice. It is essential to get this blown timber cut. We and the Forestry Commission are putting up no obstacle to this, but it is essential that the ground, when cleared, should be replanted, and the owners have agreed with the Forestry Commission in the steps they are now taking.

Sir J. Barlow: Is my hon. Friend aware that owing to the fact that this timber has been blown down some of the land is not suitable for replanting? It is utterly wrong, surely, that provision should be made under this Act for dealing with blown timber when only growing timber is mentioned?

Mr. Stewart: I hope that my hon. Friend will not be too theoretical about this. In any case where the owner is asked to fulfil conditions about replanting which appear to him to be unreasonable he has the right of appeal. There is machinery by which his appeal can be heard. The owners now have agreed to the Forestry Commission's present plans on the assumption that the conditions they ask for are reasonable. Therefore, I have every reason myself to think that they will be reasonable.

Mr. T. Fraser: Is it not disgraceful that the Secretary of State should support the Forestry Commission in saying to the woodland owners in the North of Scotland that they must go to the courts if they want to prove that blown timber is not growing timber? Surely there is all the difference in the world? Why should he take advantage of the provisions of the statute and accept blown timber as growing timber?

Mr. Stewart: There is no practical point in that. The owners have met the Forestry Commission and they have agreed with the Commission that they should interpret the Act as they are doing, for the purpose of getting the felled trees out of the way and getting the land replanted as soon as possible. These are two national projects that everybody should surely support.

Teaching Staff (Standard of Entry)

Mr. Rankin: asked the Secretary of State for Scotland if he is aware of the dissatisfaction among teachers over his proposal to lower the standard of entry to the teaching profession; and if he is prepared to reconsider his decision.

Mr. Hamilton: asked the Secretary of State for Scotland which organisations were consulted before he issued Circular No. 269 relating to entrance to the teacher training colleges; and which of these organisations approved of the proposals contained in the circular.

Mr. Henderson Stewart: Before publishing the draft regulations which accompanied Circular 269 I had discussions with representatives of the Association of Councils of Counties of Cities, the Association of County Councils, the National Committee for the Training of Teachers, the Association of Directors of Education and the Educational Institute of Scotland. My right hon. Friend also received memoranda which he had asked the Association of Headmasters of Senior Secondary Schools and the Association of Headmistresses to submit. The consultations were on a confidential basis, but I can say that the proposal met with wide support, though, as the Educational Institute have announced, they were against it. As required by the Act, my right hon. Friend will have regard to any representations against the draft regulations submitted by 20th July, and will then consider whether to proceed further with the proposal. If he decides to do so, regulations will be laid before Parliament which will be subject to annulment on a Prayer.

Mr. Rankin: Is the hon. Gentleman aware that in the explanatory note it is made clear that the regulations are mainly directed to women entrants? Are we to conclude that in their operation men will be excluded? Further, can the hon.


Gentleman say what he will do if teachers refuse to co-operate in training these entrants to the profession who have these inferior qualifications?

Mr. Stewart: As to the second matter, I hope that that will not arise at this moment. As to the first point, it is true that the regulations will apply almost entirely to women, but there are one or two exceptions in the case of technical persons, as the hon. Gentleman knows.

Mr. Rankin: Would the Minister then indicate what particular types of specialist teachers are to be included in the regulations?

Mr. Stewart: Unfortunately I have not the draft regulations in front of me and I am sorry I cannot answer that. I will gladly tell the hon. Gentleman as soon as I get the information.

Detergents

Mr. Rankin: asked the Secretary of State for Scotland what information he has received from his technical staff to show which detergents are harmful in their effects on the skin particularly in producing eczema, and should therefore be avoided.

Mr. Henderson Stewart: None, Sir.

Mr. Rankin: Could the Minister tell us if there are any periodical analyses conducted by his technical staff in order to ascertain and keep themselves fully informed of any possible change in the constituents of detergents?

Mr. Stewart: I think that is done. I should perhaps inform the hon. Member that the Department of Health chief medical officer advises that while there have been isolated cases of dermititis here and there, and while there have been suggestions made that they might have been caused by detergents, neither the Department, the Ministry of Health, the Minister of Labour nor the Ministry of National Insurance have any positive records to show that dermatitis or eczema is being caused by detergents in general or by any particular types of them.

Sir H. Williams: Will the hon. Gentleman consult with the Minister of Housing and Local Government, who recently appointed a committee to inquire into the effects of detergents and all that sort of thing?

Mr. Stewart: We are in touch with all these developments.

Lieut.-Colonel Lipton: Is the Minister aware that there have been constant complaints by housewives south of the border, and will he consult with the Ministry of Health to ensure that some independent research through the Medical Research Council is conducted into the constituents of these detergents with a view to removing the fairly widespread anxiety that exists?

Mr. Stewart: I will convey that suggestion to my right hon. Friend.

Highlands Development

Lord Malcolm Douglas-Hamilton: asked the Secretary of State for Scotland in how many instances he has used the powers given him under the Town and Country Planning (Scotland) Act, 1947, to encourage industry in the Highlands; and what plans he has for the future.

Mr. Henderson Stewart: With the approval of the Secretary of State two local authorities in the Highlands have exercised their powers under the planning Acts to provide either sites or buildings or both for industrial development. My right hon. Friend is ready to give most sympathetic consideration to any similar proposals put forward by the local authorities.

Lord Malcolm Douglas-Hamilton: I thank my right hon. Friend for that reply, but does he consider that industrialists are fully aware of the considerable advantages which can accrue to them in establishing satellite factories in the Highlands under this scheme? Furthermore, does he not think that the Secretary of State has in his hands a powerful means by this method of establishing small, suitable industries throughout the Highlands?

Mr. Stewart: I quite agree with my noble Friend, and I wish that more industrialists knew about it, but I also wish that all local authorities who have the opportunity would investigate the possibilities of this matter and exercise their powers.

Lord Malcolm Douglas-Hamilton: asked the Secretary of State for Scotland whether, to give farmers and crofters in the north every possible encouragement


to increase the nation's food supply, he will introduce legislation to create a North of Scotland food-production and marketing organisation with the same financial facilities as those enjoyed by the North of Scotland Hydro-Electric Board.

Mr. Henderson Stewart: While my right hon. Friend is anxious to encourage food production by every possible means, he does not consider the introduction of legislation on the lines suggested an appropriate step for this purpose. He would be interested, however, to receive from my noble Friend details of the kind of organisation he has in mind.

Lord Malcolm Douglas-Hamilton: I thank my right hon. Friend for that reply, but does he not consider, apart from the difficulties of basic services and transport costs, that the main need for development in the Highland area is money, and could he not do something to meet this need more speedily in the Highlands?

Mr. Stewart: I think that is a pretty general desire.

Mr. McNeil: Though the hon. Member assures his noble Friend that his right hon. Friend is most anxious to increase food production in this area by every possible means, would he tell us when the Hill Beef Commission last met, and when his right hon. Friend proposes it should meet again?

Mr. Stewart: I require notice of that question.

Mr. McNeil: If I tell the hon. Gentleman that it has not met since December will he use his influence to persuade his right hon. Friend to arrange for it to meet again in the near future?

Mr. Stewart: I will convey that information to my right hon. Friend.

Housing (Use of Stone)

Mr. Grimond: asked the Secretary of State for Scotland if, in view of the reasonable comparison in cost with brick and concrete housing, he will encourage the use of stone for new houses.

Mr. Henderson Stewart: My right hon. Friend has told local authorities that he is ready to consider sympathetically proposals for building houses in stone provided the cost is reasonable.

Mr. Grimond: Would the Minister agree that the figures which he gave me last week were very striking as showing that stone is cheaper than bricks and concrete in a good many cases, and that a great deal of good local stone in parts of the Highlands is available for this purpose? Will he see that every effort is made to ensure its use?

Mr. Stewart: There are a number of provisions—I have them here but I will not weary the House with them—which are now operating and which encourage local authorities and private persons to use stone. I agree with the hon. Gentleman's aims in this direction.

Fire Service School, East Lothian

Mr. Hannan: asked the Secretary of State for Scotland the cost, separately, of the acquisition, adaptation, and equipment of the former Marine Hotel, Gullane, East Lothian, as a residential school for the fire service; and what will be the average cost per student per week.

Mr. Henderson Stewart: The purchase price of the Marine Hotel, which was generously met by the Fire Service Research and Training Trust, was £13,500, and the estimated cost of adapting the property and providing a drill ground, water tanks and a drill tower is £18,500. The cost of additional furniture and equipment is estimated at £3,000. The estimated average cost per student per week is £9 6s.

Mr. Hannan: Is not this a striking misapplication of money and material in the strenuous times through which the country is passing? Can the Joint Undersecretary state who are the Fire Research Trust? Are they appointed by the Secretary of State to administer funds apportioned by him, and what public funds are involved in this whole project?

Mr. Stewart: To deal with the latter point first, the public funds involved are the sums that I mentioned to the hon. Gentleman and include the cost of adapting the property and the cost of furniture. The other part comes from a trust which, as he knows, has a fund established by other means. As to whether it is a shocking waste of money or not, the fact is that the present training college for firemen is in an ancient building at Paisley which, as everybody knows is very old and the


cost there is very high. By making this transfer the cost per student will be considerably less, more firemen will be trained, and that being the aim of everybody I should have thought that this step would meet with general approval.

Mr. Hannan: Does the Joint Undersecretary not understand the position? What is the point of having men who are trained to go to fires doing so with ageing appliances? Would it not be more sensible to spend money on up-to-date appliances and obviate having the men meeting the difficulties that they are experiencing at the present moment?

Mr. Stewart: I can quite understand the hon. Member's point of view, and I agree with him that we need better fire equipment. He will also agree that firemen must be properly trained. I took the greatest care before I gave my own approval to this matter. I went to see the place, I examined it, and I met all the leading firemen in Scotland. I was assured, after considerable doubts, that this was essential for the better fire services of our country.

Sir D. Robertson: Why do the Government consider that students have to be trained and accommodated in hostels at public expense? Would not it be possible for firemen to be trained, as they have been trained throughout the country for generations, by qualified firemen in fire stations without having to provide lodgings for them and a lot of other facilities?

Mr. Stewart: That was exactly the point that I put to the expert fire masters whom I met in Scotland before I agreed to this expenditure, but it was pointed out to me that the need was not only for instruction but for implements of instruction, which are not available except at a central place such as this.

Mr. McNeil: Would the hon. Gentleman tell us what implements he hopes to have in this training school which are not available in a first-class fire station, such as Glasgow? Will he tell us what benefits he hopes will derive from theoretical training in this school as opposed to practical fire service training in such a place as Glasgow; and will he also tell us further why the Government find it desirable to spend £20,000 a year on this scheme instead of making it a first instalment of the development of the pilot peat station in Caithness?

Mr. Stewart: I also thought of that idea of the Glasgow Fire Brigade providing this service, which they did during the war, but Glasgow is not willing to do that now. It is not a practical proposition. The right hon. Gentleman ought to recall that himself. Therefore, we had to find a central station. The one at Paisley is costly, out of date and inefficient, as everybody admits it to be, and this is an endeavour to provide an efficient station.

Fire Hydrants (Standardisation)

Mr. Hannan: asked the Secretary of State for Scotland the average cost of replacing an out-of-date, ball-type fire hydrant with the present standardised type; and the estimated cost of standardising all fire hydrants in Scotland.

Mr. Henderson Stewart: The average cost of replacing a ball-type hydrant by the standardised type is about £30. The estimated cost of standardising the 62,000 non-standard hydrants at present existing in Scotland would be upwards of £1½ million.

Mr. Hannan: Is the Joint Undersecretary aware that in his report on the fire services in 1952 the Chief Inspector for Scotland said that little had been done in regard to these conversions? I hope that the hon. Gentleman will stress how important it is that when men go to an incident they should not feel a sense of frustration by having to stand by and watch a fire burning because they cannot operate their appliances on out-of-date connections.

Mr. Stewart: I warmly agree with the hon. Gentleman. We are quite aware of that and we are doing what we can, within the resources at our disposal, to improve the equipment.

Mr. Hannan: asked the Secretary of State for Scotland how many fire hydrants there are in Scotland; how many are fitted with standardised outlets; how many were converted last year for the use of standardised standpipes; how many remain to be so converted; and how many of the ball-type need replacement for the use of standardized equipment.

Mr. Henderson Stewart: It is estimated that there were 85,000 fire hydrants in Scotland at the end of last year, of which about 23,000 were fitted with standardised outlets. The number converted last year was 4,482. The number of hydrants remaining to be converted or replaced is thus about 62,000. of which about two-thirds are of the ball-type variety which cannot be converted and will eventually have to be replaced.

Mr. Hannan: Will the hon. Gentleman draw the attention of his right hon. Friend to these figures and ask him to get a move on with this most important work in order to protect, at factories and ports, exports and produce which are so important to our economic life?

Mr. Stewart: I hope that when the Government are able to do all this work and spend all this money, they will not be criticised, as they have been on another fire service matter this afternoon.

WAR PENSIONS (PERSONAL CASES)

Mr. George Craddock: asked the Minister of Pensions if he is aware that Mr. F. Skelly, of 62, Charteris Road, Bradford, was refused a war pension between 1943 and 1951; and, in view of the reinstatement of pension in 1951 based upon medical evidence which proved that the disability arose from war service, if he will consider making payment of pension retrospective to a date in 1943 and so remove an injustice done to Mr. Skelly.

The Parliamentary Secretary to the Ministry of Pensions (Brigadier J. G. Smyth): As my hon. Friend told the hon. Member in a letter of 6th May, he can find no exceptional grounds on which Mr. Skelly could be awarded arrears of pension from 1943; he made no approach to the Department between 1943 and 1951 and it seems clear that he was not prevented by reasons outside his own control from making an earlier application for reinstatement of pension.

Mr. Craddock: Whilst thanking the Minister for that reply, may I ask him why the fact that this man is a Christian Scientist and believes in faith healing should not be taken into account? Whilst

it is true that there was a period during which he was not under medical supervision, I do not think that because of his beliefs the man should be incommoded in respect of receiving his pension for the period stated in the Question.

Brigadier Smyth: As the hon. Gentleman knows, my hon. Friend has gone very carefully indeed into every aspect of this case, but he cannot find any reason for back-dating the pension for eight years. To start with, he has no means of knowing the extent of the disability throughout those eight years. If the hon. Gentleman has any new evidence with regard to the case which he has not already put in the correspondence, we should certainly like to see it and would look into it.

Lord Malcolm Douglas-Hamilton: asked the Minister of Pensions whether he will allow Mr. R. Munro, of Ridgewood Viewfield, Inverness, who was 100 per cent. disabled in World War I, a constant attendance grant, and an unemployability grant.

Brigadier Smyth: My hon. Friend is arranging to obtain an up-to-date medical report on Mr. Munro's condition and when this is received will consider whether a constant attendance allowance can be granted. Mr. Munro is receiving a "wounds pension" and under the Royal Warrant my hon. Friend is not empowered to award an unemployability supplement to an officer who is in receipt of this special pension, which is higher than the standard rate of war pension. Mr. Munro receives by way of "wounds pension" and retirement pension more than he would get if he were transferred to the standard rate of war pension and became eligible for the unemployability supplement, which is not payable with a retirement pension.

Lord Malcolm Douglas-Hamilton: May I ask my hon. and gallant Friend if he is aware that this man, who was 100 per cent. disabled as the result of a wound received in action in World War I, is wholly dependent on his wife and is totally unable to work, and that there has been no increase in the award which was made to him in 1923, since that date, although the letter telling him of his award said that it would be liable to re-adjustment according to increases or decreases in the cost of living? In view


of the vast increase since then, does my hon. Friend not think it is time that this pension was readjusted?

Brigadier Smyth: With regard to the first point, that of the constant attendance allowance, the pensioner was examined two years ago with a view to seeing whether he would be eligible for it. When we received the representations of my noble Friend we took steps to have the pensioner re-examined and, when that examination is completed, I will inform my noble Friend. With regard to the second point, the pensioner has been on a higher rate of pension than the standard rate, so I do not think he has been unfairly treated. Should his present rate drop below the standard rate he can transfer on to the standard rate at any time, but at the moment his pension is higher than that received by equivalent people.

Oral Answers to Questions — BRITISH ARMY

Welsh National Service Men

Mr. Gower: asked the Secretary of State for War if he will increase the opportunties available for Welsh National Service men to serve with Welsh units.

The Secretary of State for War (Mr. Antony Head): Welsh National Service men are posted to fill all available National Service vacancies in the Welsh Guards and the three Welsh infantry regiments.

Mr. Gower: Will not my right hon. Friend agree that in this respect, as in many others, Welsh nationals do not have as many opportunities as the Scots and people in Northern Ireland?

Mr. Head: We have only three Welsh infantry regiments and we fill them with Welshmen. I do not think we can go further than that.

Mr. G. Thomas: Is the Minister aware that the best opportunity to give to Welshmen would be to end conscription and let them decide if they want to volunteer for any unit at all?

Mr. Head: I think that the hon. Gentleman had better put down a Question about that.

Mr. C. Hughes: asked the Secretary of State for War to what extent the Welsh

language was used in recent tests to determine educational standards among National Service men recruited from Wales.

Mr. Head: Two educational tests are given to all recruits as part of the selection procedure, which is designed to put the men in the most suitable military jobs. For this reason the English language, which is used in all military work, is used for these tests.

Mr. Hughes: Is the Minister aware that the first language of most of these recruits from the Welsh-speaking areas of Wales is Welsh, and that therefore the report which was published by his education department about two months ago is completely valueless because the Welsh language was not used? Furthermore, is he aware that the figures in that report were misleading and that the conclusions in it were offensive to the Welsh people? Will he convey that to his education department?

Mr. Head: I will certainly try to find out more about the report, but the hon. Gentleman will appreciate that when we make these tests we do it to gain an assessment of what these men are going to do when they join the Army, where they have to speak English.

Mr. J. Griffiths: Is the Minister aware that these figures allege a proportion of illiteracy which no one in Wales believes for a moment? For example, in my own county we have a bigger proportion of grammar schools than any other county in the country. Will the Minister publish in the report the criterion upon which these tests are based, so that we can judge for ourselves?

Mr. Head: If the right hon. Gentleman will put down a Question, I will try to give him an answer.

Personal Case

Mr. Driberg: asked the Secretary of State for War why Mr. N. C. Brown, Brookside, Little Totham, Maldon, Essex, formerly 22605957 Gunner Brown, Royal Artillery, has not received the moneys which he was assured, on his demobilisation on 11th May, would be sent to him within about a week; and if he will expedite payment.

Mr. Head: As soon as this case was brought to my notice, I arranged for an immediate payment to be made to Mr. Brown. Final settlement was made on 18th June.

Mr. Mikardo: Whilst appreciating that there is an occasional slip up in even the best regulated offices, is the Minister satisfied that the Army pay offices are making full use of the best modern methods for the calculation and disbursement of pay?

Mr. Head: That is rather a different question, but I can tell the hon. Gentleman that a great deal of new machinery has been put into both our record and pay offices.

Soldier's Death, Moston Hall Hospital

Mr. Lewis: asked the Secretary of State for War (1) if he will give an assurance that the dependants and next-of-kin of the late Private Donald Harrison will be properly and adequately compensated financially;
(2) why, in his letter to Mrs. Dorothy Harrison, mother of the late Private Donald Harrison, he made no mention of the War Office accepting full financial responsibility for their neglect; and whether he will take the necessary action to rectify this.

Wing Commander Hulbert: asked the Secretary of State for War if consideration has been given to the making of an ex gratia payment to Mrs. Harrison, the widowed mother of the late Private Harrison, who died in a military hospital last April.

Mr. Snow: On a point of order, Mr. Speaker. As an officer is facing a court martial in the case to which these Questions refer, should there not be some caution in the acceptance of these Questions by the Table?

Mr. Speaker: The first Question is in rather general terms and does not impinge upon the subject matter of the court martial. I was about to warn the House that, if there were any straying into the merits of the case, that would be out of order.

Mr. Bellenger: Further to the point of order. Is it not a fact that a court of inquiry has investigated certain matters connected with this case and has reported publicly and that these Questions do not deal with any matter which is sub judice?

Mr. Speaker: We had better wait and see how the answers to subsequent Questions go. The point made by the hon. Member for Lichfield and Tamworth (Mr. Snow) has substance in it.

Mr. Head: I understand that my hon. Friend the Minister of Pensions has awarded Mrs. Harrison a pension.

Mr. Lewis: The Minister has not attempted to answer Question 28. I ask in Question 28 whether or not he could give a reason why in his letter, which I agree was very sympathetic, he made no mention of the War Office, the Government or any Department accepting financial responsibility. Can he now explain why he did not in some way give some alleviation to the suffering of this mother by mentioning it in the letter which he sent her?

Mr. Head: That matter did not escape my notice, but I deliberately refrained from saying anything because the final decision did not lie within my province and had not been made. I think it would have been very wrong to give any assurance to her which could not be fulfilled, and I deliberately delayed it until a decision had been made.

Wing Commander Hulbert: Is my right hon. Friend aware that the late Private Harrison was a constituent of mine and I am quite capable of looking after his interests without the assistance of the Opposition? May I further ask my right hon. Friend if Mrs. Harrison has been informed of this award, and if he can now tell the House what the award is?

Mr. Head: My hon. and gallant Friend will appreciate that it is not for me to inform Mrs. Harrison, but for the Minister of Pensions, and I am not aware whether he has done so. So far as the award is concerned it has been worked out as being the maximum which she can have which will not proportionately reduce the other assistance given to her. That is the basis on which it has been made.

Mr. Hastings: asked the Secretary of State for War whether, in view of recent disclosures, he will institute an inquiry as to the organisation and administration of military hospitals and the desirability of the treatment of Service patients in civil hospitals as in the late war.

Mr. Head: No, Sir. I have been into the whole of this serious occurrence most carefully and I am convinced that it was caused not by any fault in the method of procedure laid down for Army hospitals, but by the failure of certain individuals to carry out their duties.

Mr. Hastings: Will the right hon. Gentleman agree that the best medical advice should be available to all Service personnel, and that that advice is much more likely to be obtainable in a large general civilian hospital than anywhere else?

Mr. Head: We have a very close liaison with civilian medical staff and a great many surgeons work for us. Twenty per cent. of our medical cases are treated in civilian hospitals. I can assure the hon. Member that there is a very close liaison indeed.

Mr. Bevan: Is there any reason why Service hospitals in Great Britain should not be part of the general hospital service? Is there any reason why, when a person is wounded or ill, he should be treated in any other way than as a civilian?

Mr. Head: That is a very much wider question which raises the whole policy of integration of the Service and civilian hospital systems, and I do not think I could give an answer to that now.

Mr. Lewis: asked the Secretary of State for War whether he will take action to recommend Army Nurse Irene Rosser and Private John Edward Nicholson for some public pecuniary award in appreciation of their action in drawing public attention to the case of the late Private Donald Harrison.

Mr. Head: No, Sir.

Mr. Lewis: Is the Minister aware that these two individuals did go to some pains and did in fact cause themselves great difficulty in drawing public attention to this matter? Surely they should

receive some recompense? If it is not given on this basis, can the Minister do something with regard to the court martial and have it expunged from the record?

Mr. Head: The court martial raises an issue different from that in the Question. I think it would be quite improper if one were to give a financial reward to a man who was absent twice when to achieve his object once would have been ample.

ECONOMIC SITUATION

Sir W. Smithers: asked the Chancellor of the Exchequer whether, in view of the continuance of the excess of imports over exports, and in view of the fact that all increases in national and local government expenditure and in wages increase our costs of production and impede or destroy our ability to compete in the markets of the world, he will take steps to restrict increases in expenditure and wages, and issue a White Paper in simple language explaining the' present economic position of the country; and if he will make a statement

The Chancellor of the Exchequer (Mr. R. A. Butler): It has been my constant endeavour, not only in my Budget speech but also on all other suitable occasions, to put the economic situation of the country clearly before the people and in particular to stress the vital necessity of our improving our competitive power in overseas markets. I shall continue to do so and shall continue to take whatever action is open to the Government to maintain economic conditions best calculated to further the efforts of employers and workers to secure higher production and lower costs and to encourage the expansion of exports

Sir W. Smithers: May I ask my right hon. Friend why he will not adopt the suggestion in the Question and tell the people of Britain, including himself, that the principle behind the Budget is the same as the principle behind the budget of the humblest home in the country— that is, that if one spends more than one's income the end must be disaster? Will my right hon. Friend also explain that this is the one country in the world which is not and cannot become self-supporting, and that unless we make whatever efforts


are necessary and export goods and services at world competitive prices we are faced with starvation?

Mr. Speaker: That seems to be anticipating the debate on the Finance Bill.

INTERNATIONAL AGENCIES (TAX-FREE SALARIES)

Mr. Grimond: asked the Chancellor of the Exchequer the Government's policy about the payment of tax-free salaries to British servants of international agencies.

Mr. R. A. Butler: It is the Government's policy to see that British servants of international agencies are treated no differently from the servants of other nationalities of the same agencies. So far as exemption from United Kingdom Income Tax is concerned, the matter is governed by the International Organisations (Immunities and Privileges) Act, 1950. This requires that privileges may not be granted until an Order in Council has been made and approved by each House of Parliament.

Mr. Grimond: May I ask the Chancellor whether the decisions are uniform throughout all these agencies? Also, while I appreciate the great difficulties of drawing up any international salary scales in view of the taxation position, may I ask whether there is not now some anomaly between the position of some people working in these agencies and others doing similar work in international services?

Mr. Butler: The matter has received some public attention and it is a source of some anxiety to at least one international organisation, which has just started an inquiry. I can assure the hon. Member that if any such inquiry is instituted by an international organisation we, so far as we are concerned, shall take an interest in the matter.

Mr. Driberg: The right hon. Gentleman did not answer all the last supplementary question. Could he say whether the scales are in fact uniform as between nationals of different countries? He says ours should be treated no differently from any others. If that is so, why does not the same principle apply to Servicemen in the various forces of the United Nations?

Mr. Butler: I should want notice of the exact situation of each particular international agency concerned. All we want to see is that our nationals are treated the same as other nationals. If the hon. Member cares to put down a Question on the other point, I will try to give him an answer.

AIR POLLUTION INQUIRY

Mr. Bartley: asked the Minister of Housing and Local Government if he will ensure that the committee of inquiry into the problem of air pollution will include investigations into the effects of the discharge of sulphuretted hydrogen into the atmosphere in areas where there are colliery refuse tips and refuse from chemical works.

The Minister of Housing and Local Government (Mr. Harold Macmillan): The committee's terms of reference will be wide enough to cover this, but I would prefer them to decide, from the evidence they receive, which particular aspects most need investigating.

Mr. Bartley: Is the Minister aware that the case of this discharge of sulphuretted hydrogen, to which I have drawn attention recently in this House, is one which has been the subject of a public analyst's report recently, in which a statement was made that this kind of atmospheric pollution might be a danger to public health? Will the right hon. Gentleman expedite an inquiry in order that local authorities may have information about the most up-to-date methods of preventing this pollution?

HOUSING, CARDIFF (RENTS)

Mr. G. Thomas: asked the Minister of Housing and Local Government whether the Cardiff City Council have submitted to him their means test proposals for rent charges on houses built with Government and local subsidy; and what representations he has made to the Cardiff City Council on this question.

Mr. H. Macmillan: No, Sir. The fixing of rents of council houses is a matter solely for the council concerned.

Mr. Thomas: Is the Minister aware that I am not surprised that he tries to avoid any responsibility in this matter,


but there is a widespread belief in the City of Cardiff that this is simply means of blackmailing people into buying council houses and that it is not due solely to the financial income of the authority? Will the right hon. Gentleman look at the matter again?

Mr. Macmillan: I will of course look at anything the hon. Member asks me to look at, and I shall be glad to discuss the question with him, but the statutory obligation of the fixing of rents-and this is not the only case of its kind-rests with the council, and not with me.

Mr. Gower: Is it not the case that similar schemes have long been brought forward by local authorities of all kinds of political complexions in other parts of the country and that the model of these schemes is in Plymouth?

Mr. Macmillan: Yes, Sir.

Mr. Thomas: In view of the unsatisfactory nature of the last reply, I propose to raise this matter on the Adjournment at the first opportunity.

Oral Answers to Questions — CORONATION

Use of Stands

Mr. Dodds: asked the Minister of Works on what date it was decided to make a charge to the public sitting in Government-erected stands to view ceremonial processions subsequent to the Coronation; what were the reasons for such a decision; and how the information was conveyed to the public.

The Minister of Works (Sir David Eccles): On 21st May I decided the charges which were to be made for the use of the stands in the Mall on four ceremonial occasions after the Coronation. Full details of these charges and information as to how seats for the parade on 11th June might be purchased in advance were issued to the Press on 28th May.
I think it only reasonable that those who occupied the stands on these occasions should contribute to the cost of the stands and to the cost of the stewarding necessary if the stands were to be safely used to their maximum capacity.

Mr. Dodds: Is it not a fact that before that date the right hon. Gentleman

explained to the House that the prices of the stand seats were to cover the cost to the Government for the Coronation ceremony? How, then, does he explain this second statement that further money was to be received for the use of the stands?

Sir D. Eccles: Unfortunately I had to fix the price of the seats in the stands early, because the Commonwealth Governments wished to get information out to the Commonwealth. It was fixed before the last tenders were in, and the last tenders were higher than the first tenders, with the result that I made a loss of a few shillings per seat.

Coats of Arms, Parliament Square

Mr. Dodds: asked the Minister of Works if he will consider offering the artistic coats of arms displayed on the Coronation stands in Parliament Square to the appropriate municipalities as souvenirs of an historic occasion.

Sir D. Eccles: Yes, Sir. I am offering these coats of arms of the county towns of the United Kingdom at approximately cost price to the appropriate cities and boroughs.

Mr. Dodds: I am sure the right hon. Gentleman is aware that that announcement will be received with a good deal of pleasure. There has been much interest in these coats of arms. Will he say how he is bringing this offer to their attention? Will he give in the OFFICIAL REPORT the names of the municipalities concerned, or will he write to them?

Sir D. Eccles: I think that this Question and answer will draw attention to it. The towns and cities are the county towns of the United Kingdom, but I may think proper to write to each one and make a separate offer.

Mr. Dodds: In view of the fact that Christie is taking up all the newspaper space these days, will the Minister do that?

Mr. F. M. Bennett: Is the Minister offering the coats of arms of the Commonwealth Governments and the Colonial Territories in the same way?

Sir D. Eccles: The Commonwealth Governments have accepted the free gift of their Emblems from Her Majesty's Government.

Oral Answers to Questions — LONDON BUILDING (USE OF GRANITE)

Mr. Hayman: asked the Minister of Works what success has attended his efforts to secure the uses of granite, where suitable, for reconstruction work in London.

Sir D. Eccles: The Consultative Committee for the Stone Industry have urged the greater use of natural stone and within the limits of building resources my Department has licensed work which specifies this material. The question of the particular type of stone must be left to the designer.

Mr. Hayman: If a request is made to the Minister for a licence for the use of granite, will he accede to it, because of the severe depression in the granite industry?

Sir D. Eccles: I shall have to look at each request on its merits, but my information is that all stonemasons in this country, except one per cent., are employed.

Oral Answers to Questions — BERMUDA CONFERENCE

Sir W. Smithers: asked the Prime Minister, when he goes to the Bermuda Conference, if he will urge the removal of all barriers to international trade and the freeing of currencies as constituting the most important contribution to world peace.

The Prime Minister (Sir Winston Churchill): My right hon. Friends the Foreign Secretary and the Chancellor of the Exchequer made a visit to Washington recently for the very purpose set out in my hon. Friend's Question, and the new United States Administration have undertaken an urgent review of their whole external economic policy. I should deprecate unduly sanguine expectations that four or five days of discussion at Bermuda will achieve solutions of all our problems. The triple Conference was proposed by President Eisenhower, and I hope that we may reach good personal understanding on a few of the large practical issues which now confront all nations who sincerely seek an easement of tension without loss of security.

Sir W. Smithers: Would not the Prime Minister agree that the only way to improve the standards of living of backward

races and to avert economic world disaster is to allow all peoples to buy in the cheapest and sell in the dearest markets because if goods cannot cross frontiers, armies will. Will he set the people free?

The Prime Minister: Those seem to me, on the whole, to be unobjectionable sentiments.

Mr. Shurmer: Will the right hon. Gentleman consider taking the hon. Member for Orpington (Sir W. Smithers) with him, as it would please both sides of the House if he would take him and leave him there?

Sir W. Smithers: On a point of order. May I tell you, Mr. Speaker, that I take no objection to that, but I wish the hon. Member for Sparkbrook (Mr. Shurmer) would go away, too.

The Prime Minister: I will try to answer that question. I earnestly hope that it will be arranged through the usual channels so that equal numbers on both sides of the House have this unfortunate experience offered to them.

Mr. Shinwell: May they go in the "Vanguard"?

Oral Answers to Questions — MID-OCEAN CLUB, BERMUDA

Mr. Mikardo: asked the Prime Minister whether he has examined the evidence submitted to him by the hon. Member for Reading, South, establishing that the Mid-Ocean Club in Bermuda, where he is to meet President Eisenhower, refuses accommodation to Jews as transient guests; and whether he will make a further statement.

The Prime Minister: I thank the hon. Member for the information that he has given me, but it does not in my view substantiate the charge that the Mid-Ocean Club discriminates against Jews as such. I am assured that Jews are accepted as members and as guests of the club. A member of the Jewish community who was introduced by another Jew happens to be staying there at the present time. I could furnish the hon. Gentleman with the names, although I do not wish to give undue publicity to private individuals.

Mr. Mikardo: While I thank the right hon. Gentleman for the interest he has taken in this matter and for carefully examining the evidence, may I ask him whether he is aware that an organisation representing 125 tourist bureaux in New York have said that on the experience of these bureaux the club definitely exercises discrimination against Jewish guests? Is he also aware that the club authorities were recently unable to explain why it was that a non-Jewish gentleman applying for accommodation was offered the choice of several rooms while a Jewish person applying for the same accommodation at the same time was told that the club was full? Will he look at the matter again, because I am sure he has been quite inadvertently misled in this affair.

The Prime Minister: The club is a members' club and is managed by the members on their authority. Of course, Christians are not the only ones who sometimes get blackballed. I am assured that there is no inhibition on principle. I have very definite evidence. Some statements have been made. There is a New York travel agency which depends very largely for its clientele upon members of the Jewish community

and which presses very much for their inclusion in this club as what are called transient guests. I am assured that there is no discrimination on grounds of racial principle at all, but one can easily see that an organised system of offering membership of the club might give an unfair commercial advantage to the agency concerned.

UNANSWERED QUESTIONS

Sir H. Williams: On a point of order, Mr. Speaker. As, for the first time for many years, we have reached the end of Questions, and as eight Questions were not answered, may we resume the prewar practice of permitting hon. Members to ask the Questions they have been authorised to ask?

Mr. Speaker: That matter has been settled, and at any rate it is now half-past three.

Mr. Driberg: Before that point of order was raised, Mr. Speaker, were you about to allow any further supplementary questions to Question No. 43?

Mr. Speaker: I was not, really. I think the matter has gone far enough.

Orders of the Day — FINANCE BILL

Considered in Committee [Progress, 22nd June].

[Sir CHARLES MACANDREW in the Chair]

New Clause.—(AMENDMENT OF INCOME TAX ACT, 1952.)

The Income Tax Act, 1952, shall be amended by the insertion after section four hundred and forty-eight of the following section:
448A. Exemption shall be granted from tax chargeable under Schedule D in respect of the profits of a trade carried on by a local community with voluntary unpaid labour solely for the provision of local amenities.

Brought up, and read the First time.

3.31 p.m.

Sir David Robertson: I beg to move, "That the Clause be read a Second time."
I am compelled to put down this new Clause because of the action of the Inland Revenue Department in making Income Tax demands on the Thurso Town Improvements Committee, the Golspie Village Amenities Committee and the Clyne Amenities Association Brora. The town of Thurso and these two villages are in my constituency and the brief facts of the case are as follows. I shall deal with Thurso first.
When the war came to an end returning soldiers, sailors and airmen came back to the lovely old town of Thurso, which was beautifully laid out a century and a half ago, but some parts of which are now in a state of disrepair owing to the poverty of the burgh and to the fact that it has no industry. The annual collection of rates from owners and occupiers in Thurso, for each of the last five or six years, is about £15,000. That will give hon. Members from more populous parts of Britain some impression of the lack of funds in that area.
These returning ex-Service men, and other citizens of all kinds of income groups, set about raising money by their own efforts to bring about improvements which, in a more prosperous area, would be borne on the rates. There the rates are high, and they weigh heavily on both owner and occupier. These public-spirited men and women felt it would be harsh to add to them in any way and

that the poorer people would be the worse hit. They also felt it would be wrong to ask the Exchequer for any further sums of money. So they set about holding a gala week which is a source of great pleasure to many visitors from other parts of the country and from overseas.
They ran sales of work and other wholesome enterprises of that kind. They applied the money to the building of a children's playground near the beach. I have visited it many times, particularly in summer when this flower garden is a place of beauty. There are swings, roundabouts and see-saws in a lovely setting of lawns, shrubs and flowers, so different to the places where children in the bigger cities have to play, with asphalt and bricks all round them.
They also applied the money to building a pram-way to assist mothers to get down to the beach and that is a great asset to the mothers of young children. They re-built 12 bathing boxes which were falling to bits. They gave money to improve playing fields and a public tennis club. I know that in the great place like Brighton and Bournemouth and Rothesay and Dunoon things like that would be a charge on the rates. But we cannot afford it in Thurso. The annual income of £15,000 does not run that far and has to be spent on things which are regarded as prior essentials.
As a further means of raising money the committee ran a dance or two. We are great people for dancing in Caithness. We are very good at amusing ourselves, because no one else does it for us. Both citizens and visitors were glad to go to these dances. Nothing amuses a Sassenach more than to go to a Highland dance to watch or to take part in the reels, and so on. They were able to rent the little town hall on a fortnightly basis and this has become a target for the Inland Revenue.
For these people who have been for six years doing all this very proper work have been delivered a bolt from the blue, a demand for £700. I did all I could to prevent the assessment being made. I thought that would be the best way of avoiding what I am compelled to do today. I have taken every possible step to avoid coming to this Committee and moving this new Clause. The answer I


received from the Inland Revenue and from the Financial Secretary, who was so courteous in receiving me and corresponding with me, is that it is the law to tax people like the members of this committee, the men and women who gave their services on a voluntary, unpaid basis.
I have been in this House for 14 years under various Governments. I do not think that that is the law. At any rate, I am certain that it was never the intention of Members of Parliament that this should be the law. If it is, why was it not enforced when this committee came into being? Nothing was hidden. Public meetings were held every year, when the townspeople were invited to be present and elect a new committee. They published their accounts, showing exactly how the money they got was raised and how it was spent. The Income Tax surveyor lives among us. He is not a stranger in a remote place. Every fortnight the local paper carried advertisements of the dances, so that if that is the law I think I am entitled to ask the Chancellor why it was not enforced for six years.
Why were these people allowed to go on year after year contributing in this way without an assessment being made? There must have been a dereliction of duty on one, two, three, four, five and six years. Or is it possible there was no dereliction of duty; that a smart official thought it was a good thing to tax a little Highland community trying to help itself in the most praiseworthy manner? So much for Thurso.
In Golspie, in the neighbouring county of Sutherland, we have no cinema. We have no race track and no dog track and I do not think we particularly want them. At the end of the war, just as happened in Thurso, the people formed an amenities committee. They realised that our young people were continuing to leave the area and that a cinema is a very desirable thing anywhere, particularly in a place where there is no other entertainment. It might be the means of stopping the flow of young people to the South and overseas. That is our greatest affliction in the Highlands, the loss of generation after generation of the best of our people.
This committee came together. They got someone to loan or give them a projector and they rented the village hall on Friday and Saturday nights and ran a cinema show. They rented the films and took it in turns to be on duty at the box office and as ushers and doorkeepers. The only person they have ever paid was the projectionist. Their object was to build a community hall with any profits they might make.
It will be recalled that at the end of the war, legislation was passed to provide money for community halls. I remember having correspondence on that subject with reference to my old constituency of Streatham. All the machinery was on the Statute Book to enable money to be found for this purpose. But in Golspie we were prepared to find the money ourselves from the profits on these cinema shows.
After six years the blow fell and a demand came in for £3,300. There was no assessment for six years, and then this demand was made. The population of the parish of Clyne, the parish involved, is only 1,000, and hon. Members will understand why the commercial cinema has never been attracted to Brora or Golspie, which have similar populations.
This matter affects every one of us in this Committee. I have been told by an eminent member of the legal profession, an Opposition Member of this House, that if this act of the Inland Revenue is correct in assessing Thurso, Golspie and Brora they would be equally correct in taxing any golf, tennis or football club, or any other kind of club that holds a dance and makes a profit.
The attitude of the Inland Revenue to the three communities that I have mentioned is that they are not charities within the meaning of the law. I am also told that the law in relation to charities throughout Great Britain is in a chaotic state. These public-spirited men and women did not have a lawyer sitting beside them when they drew up their laws and regulations. They drew up a constitution which would be regarded as wholesome and proper anywhere, but their activities are not brought within the definition of a charity, although the money which they raised is all for such wholesome purposes.
The Inland Revenue say, "Even if you were a charity you would be liable to tax because you are carrying on a trade by running a dance fortnightly "- or even once, I suppose. The Inland Revenue say that by showing a cinema film on Friday and Saturday nights these people are carrying on a trade and, therefore, are subject to tax.
The effect of all this in Thurso is to bring the dances to an end. They were the main source of revenue with which to provide these fine works of which I have spoken. I do not know what will happen to the cinema in Golspie and Brora, but I think that if they are relieved of £3,000 there will not be much heart left in anyone to continue.
I appeal to hon. Members on both sides of the Committee because hon. Members in all parties have put their names to this proposed new Clause. I am not going to divide the Committee against my own Government. I make no apology to anyone for saying that. I could not remain a Member on this side of the House and do that in present circumstances, but I wish that I were free to do otherwise. I hope it will not be necessary. I hope that my right hon. Friend the Chancellor, who has such a distinguished record, will appreciate the justice of this case. The whole thing is so lamentable.
3.45 p.m.
My colleagues on both sides of the Committee who represent the Highlands are all struggling to arrest depopulation. It is a great affliction, and it is something which Britain cannot afford. If we help ourselves and refrain from going to the Exchequer for help, why are we not allowed to continue to do it without a shock of this sort coming along and stopping dancing stone dead in Thurso and making people feel that it is not worth while going to sales of work? They feel that the Government will grab whatever funds are available.
Is it not absurd that we have legislation on the Statute Book to provide money for the building of community halls where all can meet in a democratic fashion and enjoy themselves, or at political meetings or in courses of instruction and so on, and that when the money is provided by voluntary effort of the kind that I have described-efforts by

men and women who have borne their share of the crushing taxation which we all have to pay-a burden like this should be put on them.
There would be no profits to tax if these people charged expenses and wages, but they have been glad to give of their best free, and the Inland Revenue, supported, unfortunately, by my right hon. Friend, say that it is the law that this money should be taxed. It is up to hon. Members on both sides of the Committee to say whether, in their opinion, this is the kind of law which should be made, and if not, they should make perfectly plain that they support this Clause.

Mr. Niall Macpherson: My hon. Friend the Member for Caithness and Sutherland (Sir D. Robertson) has put this case very clearly and cogently and there is not much that I need add. The question, basically, is a very simple one. We have a number of well-disposed people getting together generally to achieve a specific object for various purposes. They are willing to give their effort and their time for nothing. They build up funds with the object of achieving these purposes, and when the funds are built up the Treasury tax those funds.
It may be that those well-disposed persons are in a small burgh or a small community which has no constitutional recognition at all as such. It may be that in the burgh in which they are working the representative institution itself considers that the objectives are in themselves desirable, but that they are not objectives that the burgh itself should pursue and gives full support to the work of these people. Surely, in those circumstances, there should be some means of ensuring that it is possible for that community to have the amenities which these people have banded themselves together to provide. It seems to me that that is the simple issue, and I trust that my right hon. Friend will be able to meet it in some way.
I do not suppose that anybody will imagine that the words in this proposed new Clause are absolutely watertight. I do not know whether the term "local community," for example, is a correct legal definition, but, clearly, the intention is there. There are obvious difficulties in the present system of the law as it is


applied at present. If these funds are to be built up, and if they are then to be taxed, obviously, any committee which sets itself up for this purpose will be under a very great temptation, instead of using the money for achieving its objective, to "blue" it at the end of the year, to prevent the Treasury getting their hands on it.
It seems to me that the main difficulty arises simply because of the necessity to carry forward a sum of money from one year to another in the process of building up the fund which is to provide the amenity. Surely there ought to be some means of getting over that difficulty. I trust very much that my right hon. Friend will not give encouragement to that type of committee which sets itself up merely to provide parties of one kind or another, but will give every possible encouragement to the sort of voluntary organisation which sets itself up to provide services and amenities for the people of the community to which it belongs.

Mr. G. R. Mitchison: I am in favour of this new Clause, though not quite sure that it goes, at all points, far enough. It seems to me, first of all, that the whole question of what is and what is not a charity badly needs to be reviewed. Obviously, that cannot be done on this new Clause, but I hope it will not be overlooked.
These charity organisations provide just as good an instance as we could have. They very often give themselves a number of charitable objects, and add, at the end, a rather wide phrase of a kind which I can only describe as a loophole, by reference to the doctrine of not leaving any loophole, because through that loophole the whole bath water may go out. Then they discover that, although the generality of their objectives and their personal intentions are charitable, they are not charitable institutions, because they might spend sums of money on non-charitable objects.
A similar point arises in connection with church activities, where some of the lines of demarcation between one church function and another are really very artificial and very unreasonable. One can even get into subtle distinctions which depend on the way in which the clergy-

man is referred to and described. That is the first point.
The next point concerns this business of trade. I quite appreciate the difficulty, and it is a real one, but, on the substance of the matter, what villages are doing all over the country-not only in Scotland, but also in England-is to embark on various activities for the purpose of raising money for a village hall or something of that sort. They ought not to have to depend on the niceties of definition any more than is strictly necessary, and what I hope the Chancellor may feel able to do is not, perhaps, to accept the Clause as drafted, but to say that he will look at the matter and see whether something can be introduced, I hope on Report stage, but, if not, at the earliest possible date.
Let me take the sort of thing that presents difficulties. The new Clause says that what is intended are activities with voluntary and unpaid labour. The hon. Member for Caithness and Sutherland (Sir D. Robertson) happened to mention that, in the case he quoted, they paid the man who operated the cinema. That illustrates the sort of difficulty into which these bodies can get. It is not unlike the question which we were discussing lately concerning amateur theatricals and amateur opera performances, and, if only for that reason, I believe that the drafting of the new Clause should be reconsidered. On the other hand, I feel quite clear that this kind of activity ought not to be discouraging by taxation, and discouraged, as I am sure the hon. Member was quite right in saying, in many cases, to the point of complete extinction.
If I may turn for a moment to what may sound rather like a party line, we are in this country abolishing the kind of village community that depended almost exclusively on the squire, with the parson's occasional assistance, and it seems to me that it is our responsibility to see that we have in its place an effective village democracy-effective not mainly for political purposes, but for the whole social life of the small community. We ought not to deprive them of the opportunities they are given in that respect by activities of the sort that we have heard about today.
This is a matter of very great importance, not only in Scotland, but in all parts of the United Kingdom, and I


would add that I happen to live in Scotland. We have a cinema in a small fishing village, very much the same as they have in the hon. Gentleman's constituency, except that, being more enterprising people, we work the cinema ourselves; but that is a small distinction. The point is that this activity ought to be encouraged, and it is a proper ground for tax remission.
I want to make a third and last point. I think that assessments in arrear for a number of years are very regrettable. I quite recognise that they have to be made from time to time, and I see the sort of circumstances in which they have to be made, but I have seen, even within the limited experience of my own constituency, several cases in which they have really caused hardship. Sometimes, the hardship is increased by the local tax official being a trifle over-zealous, and forgetting, at any rate for the purpose of correspondence, that there is a six-years' limitation to what he can properly claim.
I knew a case in which a man carried on a very small business as a sweep, but finding sweeping, as a matter of free competition and private enterprise, rather unprofitable he took a job as a sweep, whereupon the local Income Tax officer, quite properly-and I am not saying that he did anything wrong-descended upon him and assessed him on the assumed profits of his sweeping when acting independently for the previous six years.
Now, sweeps are not very good at keeping accounts, and inspectors of taxes are not particularly good at assessing a sweep's profits. This kind of thing ought to be avoided if it is possible, and I hope that, in matters of that sort, the Chancellor will do his best to temper the strict letter of the law, having regard to his responsibilities concerning the public purse, and see to it that his officials do so whenever there is a question of recovering back taxation.
I hope that the hon. Gentleman who moved this new Clause, and who made such a convincing and forceful case for it, will not necessarily leave us to judge the depth of his conviction from the sonority of his voice, but will take the matter to a Division; or, if he feels unable to do that, will let somebody else do it for him, and will then express his convictions in the most forcible way

4.0 p.m.

Mr. J. Grimond: I should like to add a word or two in support of the proposed new Clause. I do not think it is necessary to say more than a word or two, because the arguments and the difficulties must be very well known to the Treasury. I can hardly feel that the Treasury want to tax the kind of association referred to and I imagine that they would like to avoid doing so if they can.
The arguments for encouraging these associations have already been presented, and they particularly apply in the North of Scotland where it is important to provide amenities if people are to be kept there at all. It is necessary to encourage people to provide their own amenities, and there is still a great tradition of self-help not only in finding amusement but building their own houses and reclaiming their own ground. I am sure that the Government have no wish to discourage that, and would like to avoid a situation in which one of these associations finds itself deprived of funds. There should be no difficulty in drafting a suitable Clause to carry out this object.
There are several salient points about these associations. The first is that they cannot possibly be said to make any profit. Most of them are voluntary and if they were charged with payment the so-called profit would completely disappear. I know there is some difficulty about the disposal of the funds, so to speak, but so long as they are put back for a community purpose for which the association was formed, there must be some way known to the experts of the Treasury to draft a suitable Amendment to the Income Tax Act to enable these associations not to be taxed.
I would say in passing that we would not like to encourage associations of the wrong kind, to which reference has been made, because it would only be the honest associations who would bear the brunt of the tax on their activities. We cannot attach blame for efficiency to Income Tax officials. Any blame must rest fairly and squarely upon us. We pass the Measures and it is for the officials to apply them, but it should be possible to make some exception to cover association activities. In the case of the local associations which exist in my constituency, in Caithness and Sutherland and other parts of the Highlands, the amounts at stake are


extremely small and are hardly worth collecting.
There can be no argument of loss of revenue. It is for the ingenuity of the Treasury to find a way to exclude associations which exist for local purposes. I would ask the Chancellor of the Exchequer to look at this matter with great sympathy, and, if he cannot accept the proposed new Clause, to try to draft something himself to carry out its objects.

The Economic Secretary to the Treasury (Mr. R. Maudling): This is a matter of considerable importance, particularly to the communities mentioned by my hon. Friend the Member for Caithness and Sutherland (Sir D. Robertson) and to many other communities, particularly in the rural areas. My right hon. Friend the Chancellor of the Exchequer has given very careful consideration to the whole problem.
We do not wish to stultify the efforts of these local organisations which-and there is no argument about it-are very worthy and excellent bodies, devoting their activities to purposes which promote the general amenities of the people living in their districts. No one wants to obstruct their activities. Income Tax officials have in this matter only been doing the duty which is laid upon them by statute to collect a certain amount of tax. They cannot let the taxpayer off, as many of them would like to do. Neither can the Minister nor Members of the Government depart from the law laid down by the House of Commons.
As to the delay in collection, mentioned by the hon. and learned Member for Kettering (Mr. Mitchison), I agree that as a general rule back assessments ought to be avoided, but it is not possible for the Inland Revenue always to know everything that is going on. Some people think that the Inland Revenue try to know too much about what people are doing. It is incumbent upon anyone who engages in a trade to make a return to the Revenue, but I particularly appreciate how inconvenient it is when taxpayers are presented with a demand for tax which is legally due in respect of activities in which they had been engaged and on which they believed they were not liable to taxation. All trading activities are liable to tax under Schedule D, the only exemption being in the case of charities.
"Charities," for this purpose, are very narrowly defined. When a trade is carried on by a charity the profits must be applied solely to the purposes of the charity, and either the trade must be exercised in the course of the actual carrying out of a primary purpose of the charity, or the work in connection with the trade must be mainly carried on by the beneficiaries; for example, a shop for the sale of goods made by the blind. Those are the only exceptions which exist at the moment.
The definition of "charity" has been drawn by the House of Commons very tightly and there is always difficulty in the way of extending the definition by exemptions of this kind too rapidly or too easily. It is of interest that the Nathan Committee on the Law and Practice relating to Charitable Trusts, which recently reported, said that in their opinion there was no case for any alteration of the content of the legal meaning of "charity." That Report is being studied at the moment by the Government. I admit that the Committee were not concerned with the specific point of taxation.
The new Clause proposes a very wide extension of charitable exemption, and there are practical difficulties. I am advised that neither the phrase "local community" nor the phrase "local amenities" is readily definable in law. There is also the difficulty to which the hon. and learned Member for Kettering referred, that the employment even of one professional projectionist would mean that the community or association would not get the benefit of tax exemption.
Considerable matters of principle are involved. To some extent what is now proposed is an extension of the exemption from charity to self-help. There is a great difference between charity, when people set out to help others, and self-help, when they set out to help themselves and to provide amenities for their own enjoyment. There is quite an extension there. It is the distinction between the kind of laudable activity or trade engaged in by a person to help his son and, on the other hand, charitable activity as a result of which a person makes a payment for a benefit of widows or orphans. It is a substantial extension, and it is difficult at first to be certain that


any group of people, who band themselves together and engage in trade in order, not to profit themselves, but to provide the community with benefits in kind, should have exemption from Income Tax such as is at present given to charitable organisations.
However, my right hon. Friend recognises the great importance of this matter to local communities, particularly in the rural areas. What he has decided to do, and has done, is to refer the question specifically to the Royal Commission on Taxation to consider and give him the benefit of their expert advice on the whole principle involved and on the practical possibility of meeting my hon. Friend's point. It so happens that the Commission are about to embark upon a general survey of the problem of charitable institutions in relation to Income Tax and it would be very convenient if they were, at the same time, to study this proposal, which has arisen as the result of the initiative of my hon. Friend.
My right hon. Friend feels that there really are difficulties about this Clause. In view of the very involved nature of the legislation on these matters and the possible repercussions from the complexity of some of the questions of principle involved, he also feels that he cannot undertake any legislation on the matter this year. But he has already referred it to the Royal Commission and has asked them for their opinion upon it as soon as they can conveniently give it after their deliberations. When they have provided their advice he will study what they have to say most carefully. Beyond that he cannot go at present, but he hopes that in view of this assurance and of the action he has taken in referring the matter to the Royal Commission my hon. Friend will be willing to consider withdrawing his Clause.

Mr. Mitchison: We do not know when the full report on this very complicated question is likely to appear. Obviously, it may take a very considerable time. Would it be possible to put this matter, which has a degree of urgency, to the Royal Commission and ask them for an early report on this aspect?

Mr. Glenvil Hall: I know that we have a very large number of new Clauses to consider today and I

am sure that some hon. Members will think some of them much more important than this one. Nevertheless, in view of what the Economic Secretary to the Treasury has said, I think it is only right that someone else from this side of the Committee should speak before we proceed to a Division or pass on to the next Clause.
I believe that there will be some disappointment in all parts of the Committee that the Economic Secretary has not gone further than he did this afternoon. None of us objects when someone stands at the Treasury Box and says that the Inland Revenue authorities must do their duty and collect taxes if, under the law, such taxes should be collected, but, if I understood him rightly, the hon. Member for Caithness and Sutherland (Sir D. Robertson), although he strongly objected to the assessment itself, still more strongly objected to the fact that seven years went by before the assessment was made, in spite of the fact that the Inland Revenue officials were living there in the midst of the activities which had gone on since 1945 or 1946. It is one thing to assess an organisation of this kind year by year right from the beginning, when everyone knows where he is, and quite another to jump on people at the end of seven years and make a tax demand of something like £700.
I was surprised to hear that the amount had been met. Normally, in cases of this kind and with charities of this sort, the money is very properly spent year by year as it is raised. I gather that in the case of another of these communities—Golspie—an even larger sum was demanded, running to over £3,000. We all object to the Inland Revenue authorities waiting for a number of years and suddenly pouncing in the name of the law. We on this side of the Committee must protest against that kind of thing happening.
The hon. and learned Member for Kettering (Mr. Mitchison), as usual, put his finger on the core of this matter, which is that the law relating to charities is in something of a mess. I was delighted to hear the Economic Secretary say that the Chancellor of the Exchequer was asking the Commission to consider it. I hope that before we pass on to the next Clause the Economic Secretary will be able to answer the question put by my


hon. and learned Friend the Member for Kettering and will tell us that an early report on this matter will be made and that even if something cannot be done, as I imagine it cannot now be done, before we pass this Bill, that certainly it will be done in the next Finance Bill.
4.15 p.m.
This matter not only affects two or three small village communities in the far North of Scotland. I gather that it affects almost every town and village in the country, and, for that matter, every political party, because all of us at one time or another have run dances. The assessment was made here because the dances were run for profit. Apparently the fact that dances were run to make a profit for a good cause made no difference under the law.
All of us, from time to time, are engaged in helping our local parties or associations to run dances for profit and the profit is devoted to political purposes. It is time that something was done about this matter and that we all knew where we were. I hope that the Economic Secretary will let us know whether we shall have proposals from the Chancellor in the next Finance Bill -that is, if the Chancellor is then in office and the Government now on the other side of the Committee are in power.

Mr. Maudling: My right hon. Friend has asked the Royal Commission to report as soon as they conveniently can on this problem, though, of course, they cannot take this specific and narrow problem apart from the general problem of charitable organisations; and, obviously, they cannot deal with it before the Report stage of the Bill.

Mr. Joseph Reeves: What happens if the community has spent the money year by year?

Mr. Glenvil Hall: These are very praiseworthy objects and we can all remember what happened a few years ago when pressure was brought on the then Chancellor to extend the exemptions allowed to theatrical performances undertaken by amateurs. At first, like the present Chancellor of the Exchequer, the then Chancellor was inclined to shy away from the proposition on the ground that it might open the gates too widely, but,

in the end, he agreed to alter the law. I am sure that everybody has found that change an exceedingly good one. I am sure that all of us have discovered that throughout the country advantage has been taken of it without harm to the Exchequer or anyone else.
I hope, therefore, that between now and next year the Chancellor will consider this matter and will find himself able to accede to the request now being made from all quarters of the Committee. The proposal is just and reasonable and cannot possibly do anybody any harm.

Mr. Douglas Houghton: I rise to say a few words in defence of Inland Revenue officials. The Committee really cannot expect me to sit here and listen to the kind of criticisms which have been made on both sides of the Committee.
I thought that the speech of the hon. Member for Caithness and Sutherland (Sir D. Robertson) was marred by the venom which seemed to creep into his remarks about Inland Revenue officials. He said that there was a dereliction of duty if an assessment was made retrospectively over a number of years, or that perhaps it was not dereliction of duty but, as he pictured it, officials took a fiendish glee in pouncing on their victims. I object to the word "pounce" in this context from whatever side of the Committee it comes. Inland Revenue officials do not pounce. All they do is to write a kindly and sympathetic letter, asking how long a person has been drawing the money and, if he says he has been doing so for six years or 10 years, it is quite natural that they should say, "We must raise assessments for those past years."
I know it is very inconvenient-and it may be absolutely disastrous, financially -for these retrospective assessments to be made, but it is not true to say that the Inland Revenue officials are living in the communities where these activities are going on. They do not go to these dances. In the North of Scotland there is Wick, Inverness and Peterhead. The hon. Member for Caithness and Sutherland (Sir D. Robertson) knows better than I do the area which must be covered by the Inland Revenue offices from those towns.
There is no inspector of taxes in the constituency of the hon. Member for


Orkney and Shetland (Mr. Grimond). His constituency is taken care of from Wick, and he knows, as I do, that dances can go on for years without the Inland Revenue authorities knowing anything about them. Quite seriously, a duty rests upon those who may be liable to tax to let the authorities know of their activities or, alternatively, to take proper advice and so save themselves from being involved in this difficult situation. There is no secret service at the disposal of the Inland Revenue. Local assessors no longer exist. There are no local informers to tell the authorities about the activities which are going on.
I hope the Committee will understand the difficulties under which Inland Revenue officers work when information regarding past activities comes to their notice, into which they are bound to inquire. The debates in the House and in Committee are, happily, singularly free from criticisms of public servants who, were I not here, would have nobody to raise a voice in their defence. I am quite adequate for the task of defending public servants on all occasions, and I happen to know a little about the Inland Revenue. They are doing a difficult job and working under tremendously difficult conditions caused by those who seek to avoid taxation. We should be grateful to the Inland Revenue for the efficiency with which they are doing their job, even though at times they do things which, on the surface, appear to be difficult to defend.

Mr. Archer Baldwin: The Committee may think that the hon. Member for Sowerby (Mr. Houghton) is biased. I want to support what he said because it cannot be said that I am biased in favour of the Inland Revenue authorities.

The Chairman: We cannot discuss the Inland Revenue officials.

Question put, and negatived.

New Clause.—(ALLEVIATION OF ESTATE DUTY ON FAMILY BUSINESSES.)

(1) Where in determining the value of an estate in respect of which estate duty is payable on the death of a person dying after the commencement of this Act, industrial buildings or machinery and plant have to be valued for any of the purposes of estate duty and the value thereof is reflected directly or indirectly in the value of any property passing or deemed to pass on the death, to that extent and on that proportion of the value of the said property, the rate of estate duty charged

shall be subject to reduction of like amount to that applicable to the agricultural value of agricultural property as provided by subsection (1) of section twenty-eight of the Finance Act, 1949.

(2) For the purpose of this section:
industrial buildings" means any industrial building or structure or any part thereof as defined by section two hundred and seventy-one of the Income Tax Act, 1952;
machinery and plant" means machinery and plant in use for the purposes of any trade or business.—[Sir W. Wakefield.]

Brought up, and read the First time.

Sir Wavell Wakefield (St. Marylebone): I beg to move, "That the Clause be read a Second time."
This Clause deals with the alleviation of Estate Duty on family businesses. There are five questions which I should like to put to the Committee and which I shall also try to answer. If I answer them satisfactorily I hope that this new Clause will receive the sympathetic consideration of the Chancellor and the support of the Committee. The first question is, what is the purpose of this Clause; the second, is it practicable; the third, is it desirable; the fourth, is it necessary, and the fifth, what are the objections, if any? If I can satisfactorily answer those questions I hope that we may see this Clause included in the Bill.
The purpose of the Clause is to provide an immediate measure of relief to those family manufacturing businesses where the death of the principal occurs. Sections 46 to 59 of the 1940 Finance Act provided for valuation by assets for the purpose of Estate Duty. This method of valuation undoubtedly bears very hardly on family manufacturing businesses, and certainly causes uncertainty. Arising from that uncertainty, much anxiety exists in the minds of those running family businesses as to what may lie in store for them in the future should a death occur.
I shall deal with this matter at greater length later on, but at this stage it might be convenient if I drew the attention of the Committee to the fact that the forerunner of Section 55 of the Finance Act of 1940 was Section 34 of the Finance Act of 1930. The essential point of the 1930 Act was that genuine industrial and manufacturing concerns were expressly excluded from its penal provisions. The main object of Section 55 of the 1940 Act


was to strengthen the 1930 Act which, in some respects, had been found to be ineffective against calculated evasion or avoidance, particularly in the case of investment companies.
It was not the genuine manufacturing concern which had practised such avoidance, because those concerns were not affected by the Act of 1930. The fact remains that Section 55 of the 1940 Act was so widely drawn as to bring the genuine industrial manufacturing concerns within its net, with grave consequences to private family manufacturing businesses.
It would not be out of place if, at this juncture, I pointed out that when Section 55 of the Finance Act of 1940 was put on the Statute Book it was done with very little discussion and with inadequate examination, for the very good reason that that discussion took place in the same week as the evacuation from Dunkirk and, as everyone knows, at that time we were more preoccupied in struggling for our survival. I would draw the attention of the Committee to the fact that another kind of survival is now being fought for—the existence and continuance of the family business, upon which much of the building up and the greatness of this country's commercial expansion and activity depended in years gone by.
I am sure that hon. Members on both sides of the Committee would agree that it would be a real national tragedy if, because of our preoccupation with the nation's survival 13 years ago, legislation were passed which caused the death of one of the economic pillars which enabled our country to survive at that time. It was the initiative of the individual in the little boat which enabled the miracle of Dunkirk to take place, and it has been the initiative and enterprise of the small family businesses upon which the greatness of our commercial past has been built.
There is no doubt that the future prosperity and success of our commercial expansion still depends upon the initiative, capacity and the successful operation of the small businesses, the family businesses and partnerships, and those who might properly be described as small manufacturers. If the Chancellor will

give sympathetic consideration to this Clause, and if the Committee will give it their support, the genuine manufacturing concern will be given a much needed and welcome relief in respect of those fixed assets which have been specified, such as buildings, plant, machinery and equipment. This can be done without touching on the many complications involved in any amendment which would otherwise be necessary to Section 55 of the 1940 Finance Act.
4.30 p.m.
This Clause applies to all the smaller manufacturing concerns, whether owned by limited companies, partnerships or individuals. An obvious parallel is the special treatment enjoyed by agricultural land. In 1935, agricultural land was exempted from the increase in the general rates of Estate Duty imposed in that year, and has been exempted from subsequent increases in the general rates of duty.
The present position is that under the Finance Act, 1949, agricultural land pays a duty of 55 per cent. of the general rate. I think I am correct in saying that the object of that special treatment was to maintain capital invested in the agricultural industry. I think it is true to say that that object has, to a considerable extent, been achieved with great advantage to agricultural production, to the well-being of our farms and to the nation as a whole.
I suggest to the Committee that it is just as important today to achieve the same objective in respect of the small manufacturing business where it is essential to maintain its capital resources intact. For that reason, I submit that there is complete justification for including this Clause in this Finance Bill.
By his Budget statement and in this year's Finance Bill, the Chancellor has shown the need for increased production, initiative and incentive and for the ploughing back of profits into industry in order to improve efficiency and to make ourselves competitive in the overseas markets. I suggest to the Chancellor that by adopting what is proposed in this Clause he would be furthering his own stated aims and his own policy. I go further, and say that if he does not do this he will prevent and hinder the very things he desires to achieve.
I do not see how anybody can be expected to go on ploughing back profits into his business, purchase new machinery, expand buildings and develop his activities when he knows full well that, if he were suddenly to die, the more he had ploughed back into fixed assets, the more likely is his family to be left destitute owing to the high rate of Estate Duty and the way it is calculated at the present time under Section 55 of the 1940 Act. If this new Clause were accepted it would undoubtedly ease the situation.
On Monday, 8th June, a very interesting article appeared in the "Financial Times" dealing with death duties and the private company, which the Chancellor may have seen. The article pointed out how very much better these things are done in the United States of America where death duties on private family businesses are calculated in such a way as to avoid the anomalies and hardships experienced in this country. While, perhaps, this new Clause would not do away with many of the existing anomalies, nevertheless it is true to say that it would greatly assist in overcoming the anxieties and difficulties which face the family business at the present time.
I now come to my second question, which is whether the introduction of this new Clause is practicable. Although it is not suggested that fixed business assets should be freed from death duties altogether—this new Clause only suggests partial exemption—nevertheless, it may not be a bad idea to see what, if any, adverse consequences there would be for the rest of the community if complete exemption were granted. It appears that approximately one-fifth of the total amount received in Estate Duty represents the duty levied on the assets of private companies and other small trading concerns.
In actual cash that one-fifth amounts to between £30 million and £40 million per annum. I suggest that the subtraction of this amount from the tax revenue would not necessitate the imposition of a counteracting burden on other sectors of the community since death duties are treated as a transfer of capital from the private to the public sector. Therefore, how much or how little is transferred is quite irrelevant.
Since less than half of this amount is affected, it would mean that some £15 million of capital would be retained in the private sector instead of being transferred to the public sector. I suggest that the national economy would benefit far more from the retention of this comparatively small sum of capital in the private sector than from its transference to the public sector. It would seem, therefore, that what is proposed in this new Clause is quite practicable.
I now come to the next question of whether it is desirable. Three years ago almost to this very day I moved a new Clause, somewhat similar to the present one, during the discussions on the Finance Bill of 1950. It is recorded in HANSARD what I said on that occasion about the desirability of giving a measure of relief to the small manufacturing businesses. At the same time, I pointed out the advantage which would undoubtedly result to our national economy as a consequence of so doing. Everything I said on that occasion has been more justified in the intervening years.
I would remind the Committee that according to the statistics of the Ministry of Labour, about 56 per cent of those employed in the manufacturing industry work in organisations employing fewer than 500, but more than 10 people. There is, of course, quite a large number working in businesses which employ fewer than 10 people, but I do not think that statistics are available in their case.
It is desirable that steps should be taken to see that small manufacturing businesses are not eliminated from our economy. I am sure that all hon. Members will agree that the small family business is an economic form of organisation for the production of a wide range of specialist goods, particularly in the craft industries where sentiment plays an important part and where personal attachments and interests are vital factors.
A considerable amount of our future export trade will undoubtedly depend on speciality and quality products such as this type of family business produces. I am sure the Committee will agree that only in this way shall we succeed in maintaining and expanding our hold on overseas markets which the Chancellor has said is so necessary to our well-being. Just as in the forest it is continually necessary to plant young trees to replace


the older ones, so, in our industrial progress, the same sort of requirement is necessary. We continually need to have a number of small and energetic businesses available to replace those which decay. It would be a great tragedy if that were prevented from happening owing to a system of penalising death duties.
I feel that I can carry the Committee with me when I say that a family business is also the home of industrial experiment. British ingenuity and inventiveness are second to none, and although our big businesses, the large combines and public industrial undertakings, do a great deal to further research and development, nevertheless an important part is played by our small family businesses in many directions in experimenting with and developing new processes and inventions. It is in this direction that we are behind in comparison with the U.S.A.
I now come to my fourth question: is the Clause necessary? Because of their deep concern about the effect of the present scale of death duties on small manufacturing concerns, the National Union of Manufacturers asked the "Economist" Intelligence Unit to undertake an independent examination of the position within recent months. A very interesting memorandum has been produced by the unit. It is full of figures and statistics with which I do not propose to weary the Committee. I believe that many hon. Members have copies of the memorandum, and I know that the Chancellor of the Exchequer has studied the document.
As a result of the investigation the unit said that it would appear that some alleviation of the burden of death duties on private companies, partnerships and other small businesses is vital. In referring to sets of figures on pages 7 and 8 of the memorandum the unit said:
These figures are sufficiently startling in themselves, but unhappily they do not do more than touch the fringe of the real gravity of the problem facing the small business today.
The unit also said:
The impression thus remains that something over 25 per cent. of small businesses with assets of £10,000 in individual hands must have their activities eaten into when their owners die, even on the Inland Revenue

figures, and this percentage might be very greatly increased if allowance were made for the factors that we have outlined above.
Towards the end of the report it is stated:
This study demonstrates a very high proportion of the small businesses in this country must have their production interfered with or their forms of organisation changed as a result of the approach or fact of death of their main owners. Moreover, as small businesses which have been built up in the days of high (post-1939) taxation come under the hammer of death duties, it is likely to be found that larger percentages of the small business man's assets are tied up in trading assets, so that more and more businesses will have to be broken up or sold. When this factor is taken into account it seems probable that more than half the small businesses now operating in this country will be affected by death duties in one way or another.
By a strange coincidence, at lunch today I was sitting next to a colleague who said that his brother had died recently and that it seemed almost certain that his nephew would have to wind up an important family business which was of great value in the county where it was situated.
In the concluding paragraph of its report the unit said:
The real hardship lies in the very stultifying effect upon the development and growth of an important sector of the community. The case histories that have been considered in this memorandum show only too well that this retardation is caused not only by the existence of duties when death actually occurs and not only in the disruption of management and the activities of the firm when counter-measures are taken before the death occurs, but also in the uncertainty and hesitation produced long before the death takes place whether or not steps are taken to lessen the existence of duty beforehand. Decisions to renew old or obsolete equipment, to open up a new line or market, to establish a new factory or to develop a new project are frequently postponed if the possibility of death duties threatens.
4.45 p.m.
It seems to me that the statements which I have read out are sufficiently clear and emphatic, coming, as they do, from a most careful, authoritative and impartial examination of the position, to show beyond doubt that it is indeed necessary to have a Clause such as my hon. Friends and I are proposing. The statements have shown that the introduction of the new Clause is an immediate necessity. It is constantly pressed upon the country that increased productivity is the only permanent solution to our


current economic troubles and that only more intensive capital investment will enable productivity to rise to any appreciable extent. If the development of that portion of the manufacturing sector of the economy where the need for higher productivity is most apparent continues to be restricted by present fiscal legislation, the improvement which could be achieved will be greatly delayed and it may well be prevented from ever taking place.
My last question is: what, if any, are the objections? The objections were raised by the Solicitor-General in the Socialist Government in 1950 and by the Economic Secretary in 1951. I have dealt with them this afternoon, and they were also dealt with in the report by the "Economist" Intelligence Unit, and there is now no need for me to trouble the Committee further on the matter.
I hope I have made clear what the purpose of the Clause is, and shown that, if it were introduced, it would be practicable, that it is both desirable and necessary, and that any objections which there may have been in the past are now without substance because of the evidence provided in the report, which is available for all to see and which I have not time to give the Committee this afternoon. I hope I may have the sympathy of the Chancellor and the support of the Committee for the new Clause.

Mr. Austen Albu: Every case must have some truth and some justice in it. In his speech, which I thought was long even for this Committee, the hon. Member for St. Marylebone (Sir W. Wakefield) mentioned the well-known case for the proposed Clause, but at the same time he repeated a large number of myths and non-sequiturs than I have ever heard in a single speech since I have been a Member of this House.
It seemed that the hon. Gentleman was not at all clear in his own mind as to the purpose for which he was moving the Clause. At one time he was trying to wring tears from our eyes for the destitute families of businessmen after the businessmen had died. At another time he was telling us that the whole economy of the country would come to ruin if we were unable to reduce the weight of Estate Duty on family businesses, which, he said, play such a substantial part in

our economy. Among the complete myths in the hon. Gentleman's remarks was the one that we are in any way dependent on those businesses. It is true that there are a large number of small businesses in the country, but a very large part of them are not making a major contribution towards our economy, especially towards our exports. Particularly is this the case with new scientific developments, experiments and so on.

Mr. George Odey: Will the hon. Gentleman state on what foundation he bases his statement about the export trade?

Mr. Albu: I make it on the basis of figures which any hon. Member can look up for himself, with which I shall not weary the Committee now. If the hon. Member for St. Marylebone will examine the mere figures of the number of companies in this country he will easily discover that only a very small part of the export trade can possibly be dependent upon family businesses.
The hon. Gentleman argued again that the export trade of this country is dependent upon some sort of special, high-quality goods in the specific field of the small family business. No one denies that these businesses contribute a very small part of our production and exports. If we are to have that argument, I suggest to the hon. Gentleman that it is better not to exaggerate it, and then his case may be received rather more favourably.

Sir W. Wakefield: Does the hon. Member suggest that the prolonged work and exports achieved in the North American market of the private family business of Jaguar Cars is any exaggeration?

Mr. Albu: Not at all. Let us have some sense of proportion. Jaguar car exports are very valuable. The hon. Gentleman was talking as if the whole of the business of this country was dependent on the family business. Let us see what is the real situation and what the hon. Gentleman is really asking for.
Nobody in the Committee denies the necessity to encourage the small business, to encourage somebody to start, as in the case of Jaguar Cars, a new line of production and, if he can, build it up. I have frequently in the Committee in previous years moved Amendments to try


to encourage the small business—the man who is trying to build up a business with insufficient capital and with all the difficulties with which a small business is faced in raising money, particularly under present financial conditions.
That, of course, is a rather different matter. It is not what the hon. Gentleman was asking for, although a large part of his speech appeared to be doing so. What he is asking for is something quite different. He is asking that the heirs of a businessman should be treated differently from the heirs of other people. He is asking that the duty that should be paid on the estate of a businessman should be less than the duty paid by other people. I do not want to go into exact details of the way in which the Inland Revenue assess the value of an estate when it passes. It may be that some minor adjustments are required, but that is not what the hon. Gentleman was asking for. He was asking for a very substantial reduction in the Estate Duty to be paid. There may be a number of reasons put forward in favour of this.
The hon. Gentleman referred to the destitute families of these businessmen. There is no evidence at all that as a result of the present level of Estate Duty on family businesses their heirs are destitute or become destitute. It may well be that they have to take certain action which they do not want to take in order to avoid becoming destitute, but they do not become destitute merely by the operation of Estate Duty, and, in my opinion, it is wrong to exaggerate the case in that way.
I suspect that what the hon. Gentleman wants to do is to reverse the present direction of taxation, particularly the taxation of inherited wealth. There is a continual pressure from the other side of the Committee that this should take place —so that the ownership of wealth shall be maintained in the hands which at present have it and that it should be handed on from generation to generation.
I agree that the present levels of Estate Duty and death duty generally are high, but there is no evidence whatsoever at the present time that they are so high that there has been any very substantial change in the distribution of the wealth of this country over the last 50 years. I

would rather see them very much higher. Those who sit on this side of the Committee are convinced that there has to be a radical redistribution of wealth.
The final argument used on the other side of the Committee, in conjunction with the personal arguments—and one is never quite certain whether the argument is because of the personal sufferings of the individual or the requirements of the national economy—is on the ground of economic policy: that these businesses will not be built up, that they will be destroyed and that the national economy will suffer accordingly if there is not a substantial reduction of Estate Duty.
The hon. Gentleman in practically the whole of his speech was, I think, referring to industrial businesses because he made several references to the valuation of the fixed estate and so on. No one is going to suggest that because of the level of duty the physical assets are destroyed. It may be true that the continuing ownership may have to pass, and we all know that it is frequently the case that it is necessary to turn a private family business which has been a private company into a public company sometime before the death of the founder in order to raise the cash to pay the Estate Duty. But none of the figures published so far, either those of the Board of Inland Revenue last year or the figures published by the chambers of commerce or by the "Economist" really give any reason to believe that the real control of a company of that sort passes on the death of the owner.
In the vast majority of cases, undoubtedly more than 50 per cent. of the value of the equity will remain in the hands of the heirs, but even in the case where it does not, the proportion that does remain is certainly sufficient to maintain the control of the business in the hands of the heirs. We all know that in recant years the Industrial Commercial Finance Corporation have set up a special body to assist this particular type of business. If we consider the matter further, one has to consider how long it is desirable that a manufacturing business should remain in the hands of one owner.
I am not referring to the question of the inheritance of wealth and whether wealth should be redistributed or passed on from one generation to another, I am


referring to the economic desirability of maintaining a business in family hands. I am quite convinced that it is quite undesirable that a business should remain in the hands of one family for more than one or two generations.
I have already said that I think that in the present situation it will remain in the control of the second generation and in most cases in the control of the third. There are many businesses in which we know control can be maintained by all sorts of methods and by not involving the holding of any very large proportion of the total financial capital of the company. Even in cases where those methods are not resorted to, I think that it is pretty clear that the control will go over a generation or two even under present conditions. Is it desirable that it should go on for ever?
I think that one of the biggest defects in British industry, particularly in our older industries, has been nepotism. The hon. Gentleman has probably seen referance in Manchester to the effects of nepotism in the textile industry. I do not think there is much disagreement in the Committee—I should be surprised if there were—that one of the biggest handicaps to the Lancashire cotton textile industry was its continuous family ownership.
What frequently happens in businesses of this kind is that the main interest of those who have to manage it in the second or third generation is the maintenance of the income of a large number of people who play no part in it whatsoever—of a group of families, old aunts and so on. They play no part in the business and take no interest in it, and their only concern is that they should be able to maintain their incomes at a time when the value of money is falling and they want to get a higher return. This is one of the reasons why so many of our industries have been starved of capital, have not had sufficient profits ploughed back and the physical assets of the industry have been run down. I do not think that anyone who knows Lancashire would deny that.
5.0 p.m.
I must say that when I had to go round Lancashire before the war trying to buy things, or to initiate the making of something, such as a piece of machinery, and went to some of the businesses supposed to be leading manufacturers of certain

types of equipment and materials, and which were being run by the second or third generation, I was not surprised that Lancashire was in the state it was before the war. I suppose that today the majority of the businesses in Lancashire which are successful, and have modern plant and equipment, and new ideas and research, are probably not family businesses at all, but large companies.
Frequently it is the case in family businesses that not only is there frustration among those engaged on the technical and managerial side who are not themselves members of the owning families, but the members of the families themselves are not particularly qualified, and hold their positions in the businesses merely because of the ownership of shares. I think that to reverse the present trend would be not only unjust, and not only, from the point of view of this side of the Committee, against the whole of the development of the redistribution of wealth that we so badly need in this country, but probably also economically disastrous.
Everybody agrees that new businesses must be allowed to start, and I have no objection to the founder of a business making a fortune, but I see no reason why his children and his grandchildren should be entitled to receive the benefit of his enterprise and initiative and brains irrespective of whether they have themselves the initiative and the brains to carry on the business. That is really what the hon. Gentleman is asking for. It is inconceivable that, if a family business is floated as a public company, and if other capital is brought in, and the shares are sold on the Stock Exchange, whoever buys in will not keep the sons and the grandsons as managers if they are doing that job efficiently. If they are not doing it efficiently it is time they went.
The arguments which the hon. Gentleman used were very largely myths, and it is very important that we should understand what he is asking for and the reasons for which he is asking it. I have no doubt that, in his usual manner, the Economic Secretary, who, I suppose, is to reply to the debate, will refuse this new Clause. In view of the terms in which I have opposed it, he will, no doubt, make some platitudinous references to the general support of the Chancellor of the idea, but I say categorically


that I entirely oppose the idea on any ground whatever, whether on the ground of equity or on the ground of economic policy, and I hope, therefore, that the Economic Secretary will not only refuse the new Clause but will not even offer it any consideration whatever.

Mr. Odey: I do not propose, in supporting the new Clause, to follow very far the somewhat sterile arguments of the hon. Member for Edmonton (Mr. Albu). It is three years ago that my hon. Friends and I brought this matter before the Committee—three years ago to the very day: and I need hardly say I am more hopeful on this occasion that our plea will be listened to and acted upon than I was three years ago. The hon. Member for Edmonton has opposed this new Clause on two grounds. One is the ground of national economy. As I hope to show to the Committee as I develop my argument, on the ground of national economy there are the soundest possible arguments for adopting this new Clause.
Private family businesses represent two thirds of British industry. By their very foundation they have been the whole basis upon which British industry has been built up. I do not believe that the Committee has realised the size and extent of the problem. I have no personal interest in the matter whatever. On the contrary, my entire business career has been spent in the service of a public company, and in that service I have purchased a number of private businesses. I am quite certain that those private businesses would not have come upon the market, and that I should not have been able to acquire them had it not been for the penal effect of the present rate of death duty.

Mr. Albu: When the hon. Gentleman bought those family businesses did he keep the managers and directors in their offices?

Mr. Odey: I am very glad the hon. Gentleman has asked me that question. Whenever I have acquired a family business, and that I acquired only on account of the incidence of death duty, or, otherwise, it would not have been in the market, I have gone to the utmost lengths to retain the family in the business. Why? Because the great advantage of those family concerns is that they retain within

them that deep personal interest between the employer and the employee which a large combine can never fully replace. That is something the hon. Member will be well advised to keep in mind.
Let me remind the Committee of the incidence of this tax, this duty on industrial concerns. On an estate of £40,000 it is 28 per cent. It rises by a graduated scale, so that on an estate of £100,000 it rises to 50 per cent. In this new Clause what we are seeking is to put industrial concerns on the same basis as that at present enjoyed by agriculture.
There have been two surveys made of this problem, one by the Inland Revenue in 1951, which totally failed to grasp the full import of the problem. I do not blame those who made the survey for that, for the simple reason that we cannot judge this problem by the cases of businesses that have actually had to be liquidated and, in some cases, wound up. There are many other cases of businesses which have been forced on to the market because of the very threat of what the payment of the death duty would involve. The other record is the one to which my hon. Friend the Member for St. Marylebone (Sir W. Wakefield) referred, and that was compiled by the "Economist" Intelligence Unit.
I put the problem to the Committee as a practical business man. When the owners of private businesses become more concerned about the situation that is going to arise in their businesses when they die, than they are concerned about the future growth and development of their businesses, we are confronted with a very serious position. It is a very large section of British industry which is confronted with that position.
We talk about increasing our productivity. What is the combined effect of the high rate of surcharge in relation to this high rate of death duty? The taxation on income is something which we have been accustomed to in this country. I myself consider that it is carried in the high rates of Surtax to such an extent that it robs men of initiative, particularly those who, by virtue of the income that they are able to command, presumably possess the best brains.
No one can deny that the very highest rates of Surtax produce a certain disinclination to effort, to put it mildly, and


in this Estate Duty position we get an even more deplorable state of affairs for the simple reason that the owner of a private business can very easily get to the stage where, owing to the rate of taxation, he has no inducement from the income point of view to continue to exert himself. Rather than develop his company he is often well advised to content himself with preserving the status quo.
We on this side of the Committee have always believed in private enterprise. Hon. Members opposite are entitled to their view that public ownership is the proper basis for the future prosperity of this country. We on this side do not believe it, and we have got a lot of evidence to support our view. If that is so, surely the least we can do is to see that private enterprise functions under conditions which encourage all those engaged in it to exert the very maximum effort that they can. Unless that is done, how can we hope to maintain the living standards of our people?
It is for that reason and on broad economic grounds that I appeal to the Chancellor of the Exchequer to give most earnest consideration to the plea put forward on behalf of this Clause.

Mr. Grimond: Yesterday the right hon. Gentleman the Member for Blackburn, West (Mr. Assheton) drew a distinction between the defence of old capital and the creation of new capital. He was speaking of the reduction of taxation, the rise in the interest rates and the encouragement thereby given by the Government to men to make and save a little money. I think it is in that direction that the Government should move further just now, and should attempt to encourage new savings and investment. I would not say that the protection of the existing capital structure of industry, which is the purpose of this new Clause, is the most vital consideration at the moment. But I have no doubt that there is in the minds of the Committee the very high rate of taxation on present earnings in industry coupled with the very high rate of Estate Duty on the death of the owner.
This particular question has got to be considered from two or three points of view as, indeed, was suggested by the hon. Member for Marylebone (Sir W. Wakefield. First of all, there is the point of view of hardship inflicted on the

family. Anyone who has had anything to do with negotiations over Estate Duty will know that it is a very hazardous business to secure a valuation of the assets and agreement as to the figures. But it is not that particular side on which I want to address a few remarks to the Committee.
The more important side of this matter is the effect on the general economy of the country, and it was to that aspect that the hon. Member for Edmonton (Mr. Albu) addressed himself when he spoke just now. I have some sympathy with him on the general question as to whether it is desirable to perpetuate for too long the control of a business by one family. I quite agree that, even in the very small experiences I have had, family control often leads to very good labour relations, labour relations which are not found when control of the business passes outside the family. On the other hand, I do not think that there would be much agreement with any proposition that the State should artificially encourage the control of a business by one family generation after generation.
It is a little unfortunate, I think, that the whole debate has been carried on in terms of family businesses, because it seems to me that what is vital is to protect the small business which is sometimes a family business but not always. One point in favour of reducing the rate of Estate Duty is the fact, as was suggested by the mover of the new Clause, that it is by no means always the family that suffers. It can be the new manager who has just been taken in, the new partner who is just applying himself to the business. They are likely to suffer as well or more than the family. As the hon. Member for Beverley (Mr. Odey) pointed out, the management of the business is apt to be disrupted and it is by no means always at the expense of the family.
5.15 p.m.
Then again I think it is too readily accepted that death duties are perhaps the chief way in which businesses are brought into the market. It is quite true that very often big monopolies are built up on the bones of the small family business. I regret that, and that is one of the serious consequences of the high rate of Estate Duty. It does encourage the monopoly, but on the other hand,


if the rate is reduced, it may not necessarily give rise to a situation where the business will continue in the family from generation to generation. That will by no means necessarily be so. As long as there is competition in the open market the family will have to maintain a high standard of management. Therefore while on the one hand high Estate Duty tends to encourage monopoly, on the other, if it is reduced, it does not necessarily mean family management for all time.
But I rather feel that the whole matter needs to be looked at from the wider point of view. It seems to me in the first place that the need, rather even than a reduction in the death duties, is that attention should be given to the fact that loans are now offered for the express purpose of ameliorating the effect of such duties on small businesses. I do not think we have had long enough to wait to see how this works. It is a matter that should be watched carefully for a time.
Then I also feel that some further consideration should be given to the proposal for graduated death duties from generation to generation. If a man is to be encouraged to build up a new business he may very naturally want to put his son into it. He will want to feel that even if his son is not going to inherit the whole of the business, he will want him to have a fair chance to share in it. But I agree with the hon. Member for Edmonton that there is not the same sort of incentive in regard to the grandson and great-grandson. I know that graduated death duties have been often considered, and there are administrative difficulties to overcome, but something on those lines might be looked at again.
The alternative to the private business is the public company. I thought that the hon. Member for Edmonton was arguing that that was the better form of control. I am surprised at this because I seem to have read criticism by the Labour Party, and indeed I thought by the hon. Member, of the divorce between the management and the inert mass of shareholders which public companies involve. In some respects I agree with this point of view. If we are not satisfied with the family business nor with the structure of public companies, there is very little left in the way of an organisation for business. It may well be that company law should

be looked at again and some new form of business organisation encouraged. I think, however, that that would be outside the scope of this Amendment.
One further point was mentioned by the hon. Member, that control could be kept on the sale of companies by creation of a special class of shares. But if this is done, I believe that such shares will be valued at a very high figure. Therefore it is not so easy as he made out for the family to keep control of the business by creating a small and special class of shares. He will find that they would have to pay extremely heavily for those shares because they would be highly valued by the taxation authorities.
I conclude by reiterating that there are other considerations beside the incidence of these particular duties which need consideration, such as taxation, company law and the general structure of death duties. I agree, however, with the hon. mover in his desire that the Government should look at what is happening to the small as well as the family businesses, and should direct their attention to the serious tendency for big monopolies to grow and grow throughout most forms of industry.

Mr. Malcolm McCorquodale: We ought all to be grateful to my hon. Friend the Member for St. Marylebone (Sir W. Wakefield) for giving us the opportunity of discussing one of the most important matters facing British industry at present. May I hastily declare my interest in that I find my living in a family business. I was glad to hear my hon. Friend emphasise the vital importance to the life and vigour of British industry which the small and family businesses contribute. I agree with the hon. Member for Orkney and Shetland (Mr. Grimond) that the emphasis is on the small and family business.
It is a truism to say that nearly all the great businesses of today were started as family businesses from family sources, and the initiative and enterprise contributed today in industry is still largely contributed from those same sources. My hon. Friend referred to the admirable report of the "Economist." It is perfectly true, as that says, that a healthy competitive economy is only possible if some small trees are growing up in the forest to replace the larger ones that may well decay.
I believe it is also true that modern taxation methods, and especially the incidence of Estate Duty, are slowly killing the idea of the private and family business as against the great public joint stock company. Whether that is a good thing or a bad thing may be open to doubt, but I think it is a bad thing. I also agree with the main point made in the "Economist" report, which I trust most people have read, in which this question is asked: Does the present trend towards the amalgamation of small family businesses into big impersonal ones really matter? The answer was that, whatever the views on that may be, surely this is a problem which is of crucial importance to the wellbeing of the nation at the present time. That, I believe.
I am glad that the question has come up of the interest of the personnel in industry in this matter. I remember well that when the private company with which I am associated wanted more capital in order to purchase another family business, because of the reasons referred to by the hon. Member, we sought to raise a debenture in the public market. This necessitated our private business being turned into a public company, and that was done.
Within a week I had representations from important sections of the trade unions represented in our business expressing grave alarm at what they had read, namely, that our private concern had been changed into a public company. They asked, did that mean that we were going through all the paraphernalia of quotations on the Stock Market? Would the personal interest be lost? I was able to assure them that this was a purely temporary measure in order that our debentures could be issued and, a fortnight later, we were able to revert to our status as a private company. To my mind the interesting point was the immediate reaction of those representing the personnel working in our industry, and the alarm expressed that the family personal interest might be lost.
Of course there are exceptions but, by and large, I am sure that industrial relations in private family concerns are much more direct, and therefore almost inevitably more cordial, than in the larger and more impersonal concerns and great public companies. As we argue so much about productivity, and as productivity

depends almost entirely on good industrial relations, apart from modern equipment, this is of vital importance at the present time. I believe it would be a tragedy if the small and family concerns lost the battle owing to the action of this Committee and of successive Governments in taxing them out of existence. I believe we would find that the most grievous injury would have been inflicted upon the entire community and upon our standard of living.
I am not arguing that the methods suggested by my hon. Friend are necessarily the correct ones or whether some other methods should be evolved. However, I would join with the hon. Member for Orkney and Shetland in saying that I believe the time has come when serious thought should be given to this matter, and the question assessed so that we can have all the facts at our disposal. So far as I can judge from the section of industry to which I have devoted all my life, I believe that the family business can compete successfully every time with the great public corporation if put on equal terms. If they can compete in that way, it means that they are more efficient, and everything which improves the efficiency of our industry is of lasting benefit to everybody who lives in this country.

Mr. Mitchison: I rise to make only two short points. The first is in reply to the right hon. Gentleman the Member for Epsom (Mr. McCorquodale). Whatever there may be in his last observation, it can only have a limited application. No one can seriously pretend that family coalmines were a success in this country. [HON. MEMBERS: "Oh."] I will not be drawn into an elaborate discussion. It is sufficient to say that we should not have the coal we are now getting, and we should not have the excellent labour relations we are now getting, if we had continued with family coalmines.

Mr. McCorquodale: I would not dispute that the state of the coal industry before the war was in any way perfect, but certainly I would not be brave enough to claim that it is perfect now under public ownership.

Mr. Mitchison: I made no such claim. I was only saying that it was rotten before the war and that it is better now.
My next point is equally short. There is some reality in many of the difficulties


which hon. Gentlemen opposite have in mind. I shall not go into the larger economic questions beyond saying that, broadly, I agree with my hon. Friend the Member for Edmonton (Mr. Albu) that many of those difficulties could be avoided if the Revenue were empowered to accept shares in suitable cases in satisfaction of death duties. I believe that, in the social and economic interests of this country to be a course that sooner or later we shall adopt. I think it would help the country, it would help the workers in businesses and, in the long run, it would lead us forward instead of leading us back. There is grave danger of our being led back if effect were given to the suggestions made from the benches opposite today.

5.30 p.m.

Mr. Robson Brown: I am very glad to follow the hon. and learned Member for Kettering (Mr. Mitchison) and to hear his sympathetic attitude to this matter. He did not reveal that attitude on the question of coalmining, but he made some observations showing an understanding of the problem, and I believe that there are many hon. Members opposite who also understand it.
I have had some experience of small businesses and large-scale enterprises, and I can say quite categorically that in my experience—which endorses what has been said this afternoon by my hon. Friends—the good will and understanding between the employees and management in small businesses far transcends that in great combines. There is a family touch which not only applies to the shareholding of the companies concerned, but also to the employees.
One suggestion put from the other side of the Committee is that the family business or small business tends to hand down authority and responsibility from generation to generation in a sort of feudal fashion, giving no opportunity for anyone else to have a say in the organisation. But the facts are quite the contrary. The more astute, the more wideawake and more able young man is put over the sons or grandsons in the business. I can give the hon. Member for Edmonton (Mr. Albu) evidence of that from all over England.
I want to dissociate my mind from the family business as opposed to the small business. It is said that there is no sentiment in business, and I do not believe that in this Committee we should have sentiment in regard to national finance nor be actuated, even by natural sympathies, for families suffering the impact of death duties. Although those sufferings are very real, we have to look at the matter dispassionately. The position is that, in the small business, at a particular time in the founder's life he has to decide whether he is to plough back into the business any profits left to him for expansion or modernisation, or to put them on one side in the bank, where they will lie sterile, against the day of his death so that the money can be used to pay death duties and the business may be perpetuated. I say that is a lamentable state of affairs which should not be allowed to continue on national economic grounds, and grounds of efficiency.
It has been said many times, except by the hon. Member for Edmonton, that the small business is the foundation of our economic structure. The evidence is perfectly clear when we take the single statistic that about 80 per cent. of all employees in British industry are working in factories which employ less than 50 employees. That is a remarkable figure and shows the strength, vigour, virility and competitive capacity of the small businesses of the country.

Mr. Albu: Did the hon. Member say that 80 per cent. of the employees in industry work in firms which employ less than 50?

Mr. Brown: That is correct.

Mr. Albu: Would the hon. Member mind quoting the source?

Mr. Brown: The source is available, and I will give it to the hon. Member if he comes to see me. The hon. Member can shake his head, but I would not make such an assertion without the evidence. It holds good with what was said by my hon. Friend the Member for Beverley (Mr. Odey), who quoted the fraction as two-thirds, which is very near that figure. There is not a single great combine or organisation in our country which has not its root in some small organisation or combination of small organisations.
We are in a very grave and dangerous position of having the industrial economy of our country brought into the control of too few hands. We on this side believe that in connection with great combines, and we are doubly opposed to it on the question of nationalisation. The most important aspect of this matter can be illustrated in reference to a small tree. The small acorn grows into the great oak, but if we take the little acorn and cut it into smaller pieces it will never grow. All over the country year by year small businesses are being broken up. They are being wiped out and their employees go. That is a serious state of affairs.
I believe that the arguments advanced from this side of the Committee are conclusive. This is a much more deep-rooted and formidable matter than, I believe, our Front Bench realise. I hope that a definite assurance will be given that my right hon. Friend will carefully consider the matter and bring forward, perhaps in the next Finance Bill, positive and constructive proposals.
We look at the young man who at a particular moment in his life has to balance the advantages of launching out on his own as an independent man, taking all the risks and hazards of building a small company, or of merging into some great organisation. I frankly and firmly believe that it is well for our country if the young, virile, active and adventurous young men have the encouragement to build up family businesses.

Mr. Frederick Lee: There have been a lot of sweeping statements by hon. Members supporting this Clause to the effect that large enterprises have a less favourable record in their relationships with employees than family businesses have. It is no part of my argument to try to detract from the good relationships which exist in many small businesses. They are very desirable, but it is quite wrong for hon. Members to assume, for the purposes of their present argument, that large businesses necessarily mean bad relationships between employees and employers. I can quote a very large firm with 25,000 to 30,000 employees where there has never been a strike in 50 years.

Mr. Odey: Surely that was not the suggestion. What has been suggested is that a private family business is able to have

a personal influence over its employees which a large combine, however well run, cannot possibly apply.

Mr. Lee: I do not accept that as being completely true. There are some small firms where undoubtedly it applies, but there are others in which, because of the general lack of capital and because of the inability of the employer to keep abreast of modern developments, conditions are really atrocious. A short time ago we discussed the foundry industry, and it was agreed on all sides that it was in the small foundry that conditions were deplorable. One could find the same in other industries.
The right hon. Member for Epsom (Mr. McCorquodale) said that most of the great businesses today started as family businesses. That may well be, but it is wrong to argue from that that those small family businesses were broken up, or had to go into amalgamation merely because of the incidence of taxation. It is not true to say that it was merely with the advent of the Labour Government that small businesses broke up; there was precious little private enterprise in a whole series of businesses for us to eliminate, even if we wanted to do so. Many of us have a sort of nostalgic feeling for the family business. In my area, where the right hon. Member for Epsom lives, and in which he has a factory, there is a feeling of real affection for that firm of which he is a distinguished member. I should be the last to detract from that sort of thing. But do not let us argue, as a consequence, that it is the case in all private businesses and is not the case in big businesses.
If the new Clause were accepted, the effect would be a very large diminution in the revenue going into the Treasury. Hon. Members opposite often argue that the Welfare State is based on the taxation of industry to an extent of something like 70 per cent. If this Clause were accepted, the Government would have two alternatives before them. One would be to take the revenue from other sources instead of from the present source, and the other would be finally to destroy the whole of the Welfare State. This Clause, therefore, is an argument either that there should be increased taxation on other sources—the general body of taxpayers—to make up for the decrease in revenue from this


source, or that there should be an appreciable drop in revenue, and the Welfare State would go in consequence. There are no other possible choices.
If we, on both sides of the Committee, are committed to maintaining the new system of social security and welfare— I do not think hon. Members opposite maintain it as well as they ought—then this Clause, whether hon. Members opposite mean it or not, would strike a death blow at the basis of social security which we have established in this country. The only alternative would be a considerable increase in the levels of taxation on the general public, and the Opposition have pledged that they will not take such a step. I put it to the Chancellor that he has no alternative but the rejection of this Clause if he is not to fly in the face of all that has been said on both sides of the House in the last three years.
The hon. Member for Esher (Mr. Rob-son Brown) argued that the rates of taxation are stultifying industry and especially small industry and are therefore having a detrimental effect upon production. That, too, flies in the face of all the facts. During the life of the Labour Government, when we were criticised for the high level of taxation on industry, production increased at a pace unprecedented in British industrial history. There was no question of bankruptcy; the word almost passed out of existence in this country. I do not ask the hon. Member to take my word for this. Let him look at the statistics, at the high record of production obtained in those days and at the fall in the number of bankruptcies in British industry during the same period. The basis of his case is in direct contradiction to the industrial facts in this country since the end of the war.

Mr. Robson Brown: Does not the hon. Member recall that there was a sellers' market throughout the whole of that period, a most extraordinary, artificial situation, in which failures were almost impossible? People had to stretch themselves to the limit to make mistakes. Hon. Members on both sides of the Committee are anxious for a lively, strong, healthy economy so that we can support a virile and useful Welfare State, and my whole argument is that the small business is the foundation of it.

Mr. Lee: I do not doubt the hon. Member's good intentions towards the Welfare State, but I am trying to show that the effects of the Clause would be to strike a mortal blow at the basis of the Welfare State. I base my argument on the facts as we have them before us, and I will not repeat them. Those facts are in entire contradiction to the case made by hon. Members opposite on the level of taxation and on production levels. I hope the Chancellor will not accept the new Clause.

5.45 p.m.

Mr. Douglas Jay: It is an admirable thing that this subject has been raised this afternoon if only for the reason that we have not discussed death duties during the examination of the Bill, but I must add that, very much for the reasons given by my hon. Friend the Member for Newton (Mr. Lee) and, in his very virile speech, by my hon. Friend the Member for Edmonton (Mr. Albu), we hope the Government will not accept the Clause.
It is true, of course, as the hon. Member for Beverley (Mr. Odey) said, that there are a large number of family businesses in British industry. It is also true, in many cases, that it is an excellent thing that there should be. I may say, in his presence, that the right hon. Member for Epsom (Mr. McCorquodale) is an ornament of the type of business we should all like to see, but it is also true that in some cases the family business is not necessarily the most desirable type of organisation. It would be foolish to argue that it always is or that it always is not.
Moreover, that is not the issue; the issue is whether death duties are taxing these businesses out of existence, or, as one hon. Member said, wiping them out. I do not believe that the evidence adduced today or at any time so far establishes this to be the fact. We have to distinguish, as the hon. Member for Orkney and Shetland (Mr. Grimond) said, between the family business and the small business. I agree with him that we must make that distinction, for there are many large family businesses in this country. It is the small business with which hon. Members opposite are mainly concerned this afternoon.
Of course, the rate of death duty on the small business is not so exceedingly high as to have these very damaging


consequences. If the total value of the business is of the order of £10,000 or £20,000, the rates are not penal. If we look at the larger businesses, however, where admittedly the rates are very high, surely there is not such a strong case on grounds of hardship. In the first place, the owner of the larger family business may very well have other assets and investments which will go a long way to meet the liabilities for death duties. If that is not so, the larger business is in a much stronger position to borrow for death duties as has been done in a great many cases. Indeed, a company for this special purpose has recently been formed in the City.
If all those expedients fail, it is possible, in order to avoid hardship, for the family business to sell its property to some other larger business, as the hon. Member for Beverley suggested. We may or may not think that is a good thing on grounds of general public policy—it could be argued for a long time—but at least it shows that there is yet another possibility open to the small business in those circumstances. Indeed, in answer to a question, the hon. Member for Beverley showed that even when that happened the family connection and the family relationships with employers were often maintained. He said that in a case with which he was familiar the family relationship with the business was not broken.

Mr. Odey: Would the right hon. Gentleman also consider, in this connection, the case of businesses which are neither sold nor going into liquidation but which just get into a state of stagnation because there is no incentive to develop? That is the point upon which the Clause is based.

Mr. Jay: If the hon. Member rests his case mainly on that, he will have to advance more evidence that there are a substantial number of such cases. So far we only have his assertion.
My mind is influenced on this subject by the inquiry which the Inland Revenue made into this whole matter a few years ago. The hon. Member for Beverley said, in a rather sweeping way, that the Inland Revenue report failed to grasp the grave import of this whole matter—or something rather vague and sweeping of that kind. But I think any hon. Member who reads that report, even allowing for a margin of doubt and for the fact that

there may have been some changes since the time it was published, cannot come to the conclusion that family businesses are being taxed out of existence by the high scale of death duties. That report showed there was a very small fraction, a tiny minority of cases in which anything of that kind occurred.

Mr. Robson Brown: I agree with much that the right hon. Gentleman has said, but circumstances have entirely changed since that examination was made.

Mr. Jay: Again we have merely the assertion of the hon. Member for Esher (Mr. Robson Brown) about that. No doubt it is interesting, but I do not think sufficient evidence has been adduced to persuade hon. Members of the fact.
Let us assume, however, that there is a small residue of cases where there is a real difficulty. I agree with my hon. and learned Friend the Member for Kettering (Mr. Mitchison) in seeing no objection in principle in such cases to the Inland Revenue taking some shares in payment for death duty. Indeed, my hon. and learned Friend was showing himself to be a convert to an idea which I put forward about 15 years ago. It has never yet found great favour with any Government, but I think we shall have to consider it again in the future.
There is less case for the relaxation or alleviation of death duty than almost any of the taxes we have discussed. Had I to choose between assimilating the rates of death duty on businesses to those at present falling on agricultural values or bringing up the agricultural rates, I think I would see a very strong argument for doing the latter. But, without discussing that issue further, I repeat that we hope the Government will not accept this new Clause.

Mr. Maudling: There is little doubt as to the importance of the issues raised by this new Clause. There are economic and, to some extent, human factors involved in this problem. I agree with my right hon. Friend the Member for Epsom (Mr. McCorquodale) that the small family business has been, and remains, an integral part of our economy. I am not relying entirely on statistics because they can be made to prove different things, but I am always surprised when statistics are produced which show what a large proportion of British industry is carried


by small concerns, as was shown by the figures produced by my hon. Friend the Member for Esher (Mr. Robson Brown).
Surely the point is that the big businesses of the future are the small businesses of the present. That is one of the important things. The other is that even if small businesses do not contribute very largely to exports—and in many lines of both visible and invisible exports they do not make a direct contribution —they are an integral part of the total economy on which our production and exports are based.
The right hon. Member for Battersea, North (Mr. Jay) rather underestimated the matter. He said that in the case of the small businesses the duty was not high. We may have different ideas of what rates of duty on a company represent a substantial disincentive to that company to expand. The right hon. Gentleman said in the case of the large company, where the rates of duty were high, the proprietor very often has assets outside with which to meet them. But that is not the case, though it is a point so often put forward. We are particularly concerned with the case of the family business where all the family money has been ploughed back into the business, and where there are no outside assets.
This may sound strange coming from a representative of the Treasury, but I would remind the Committee that, important as it is, the Inland Revenue document is not the latest work on the subject. There is the report of the "Economist" Intelligence Unit which, as one would expect, is an admirable report providing a great deal of interesting and factual information on this important problem. So I think the importance we should attach to the matter is greater than hon. Members opposite seem prepared to admit.
There are two points of difficulty. One is the rate of duty and the other is the assessment upon which that rate is made. So far as the rate of duty is concerned that is tied up with the rate of direct taxation on income as was rightly pointed out by my hon. Friend the Member for Beverley (Mr. Odey). It is a combination of the two factors of direct taxation during life and Estate Duty on death

that between them present such a serious problem.
The other serious problem is the assessment under this famous Section 55 of the 1940 Act, about which I shall have something to say later. I would say to the hon. Member for Edmonton (Mr. Albu), who appeared to write off completely the hardship caused by the operation of death duties, that he should pay account to the argument often advanced that in many cases the assessment of the duty under Section 55 is greater than the amount which could be realised by the sale of the business. If that be so, undoubtedly hardship can be caused.
I said there is an inter-relation between Estate Duty and Income Tax and Surtax. This year my right hon. Friend was able to make a substantial reduction in direct taxation which undoubtedly has been of great benefit to business concerns. But he was not able this year to make a reduction in Estate Duty. Therefore, the plea put forward is that there shall be some relief from it for those people whose estate takes the form, broadly speaking, of shareholdings in private businesses. The claim is that estates taking that form should be taxed at a substantially lower rate than the estates which take the form, for example, of shares in public companies.
That is a claim for special discrimination in taxation, which is not inevitably ruled out, but which, I would suggest, is a matter we should approach always with great caution. If our taxation system is to be maintained in its full efficiency it is important that there shall be no anomalies, or the impression that some people are getting more favourable treatment than others. The agricultural relief has been referred to, but I think those references reinforced the argument that any distinction in special relief granted may well breed further claims for further special relief and consideration. I would point out that the analogy between the agricultural relief and this problem is not a good one.
This Clause is discriminatory, in that relief is provided only for manufacturing businesses and not business generally. I think it would be difficult to sustain this discrimination indefinitely because it is wrong to follow the old fallacy that the only people who contribute to the


nation's economy are those who make something. Those who distribute and sell also have a real claim. It would be impossible to extend relief of this kind to business generally which, incidentally, were it done would multiply by five the cost of the concession for which my hon. Friend is asking. In any case, I doubt whether this concession would prove anything like enough for the purpose which my hon. Friends have in mind. Indeed, I believe the National Union of Manufacturers at one time suggested this relief as an interim measure, and the impression which I got was that my hon. Friend who moved this new Clause also regarded it as an interim measure and considered that it would not go the whole way to solving the problem that he has in mind.
6.0 p.m.
What is the argument for giving special treatment to the assets of an estate when those assets take this form—viz., of ownership of a private business? The argument is the argument of the importance of the small family business. I will not repeat what I said at the beginning, but I agree entirely on the great importance of the family business in our economy. I think it is important to emphasise, as one or two hon. Members have done, the fact that there are two words here—"small" and "family." We must be clear what we are thinking about when we talk about the small family business. As far as the small business is concerned, I would have thought that, choosing between a reduction in direct taxation and a reduction in Estate Duty, by far the greater benefit would be obtained by reductions in direct taxation of the kind which my right hon. Friend has introduced this year.
Turning to the family firm as a firm, the argument is made—and it is a most important argument, from the point of view of our economy—that in present circumstances, with the combination of direct taxation and Estate Duty, adequate capital is often not forthcoming for the expansion and development of the business. That is a serious and important argument. In the present circumstances businesses cannot be expanded, for adequate capital is not forthcoming for that expansion. It means that adequate capital is not coming from the same family source.
I should like to examine whether money is at present available to small businesses as such from other sources. It is often said that when small family businesses, for reasons of Estate Duty, and so on, have to be wound up or sold they have to be sold to their competitors. We have had examples given today, and the hon. Member for Orkney and Shetland (Mr. Grimond) referred to the un-desirability of small companies being gobbled up by competitors. That undoubtedly is an important factor, and it is desirable that sources of finance should be available for private companies, which do not emanate from competitors of the private companies and which, so far as possible, enable the family management to be maintained and the shareholdings to remain in the hands of fairly neutral shareholders.
There have been certain developments of that kind recently. The Charterhouse group have established an organisation for providing finance in those circumstances. Also, there has recently been formed a company known as the Estate Duties Investment Trust—known, I am afraid, as "Edith"—which is designed particularly with the purpose of functioning as a source of fresh capital which is required by companies facing this Estate Duty problem. It will come from a neutral source, a source which will be content to leave in operation and in control the family management and the family executive.
I was very interested in what my hon. Friend the Member for Beverley said about his practical experience of the desirability of leaving the control of a company in the hands of a family when the family has been so used to doing it, even where the shareholding has passed over. I suggest that there is an argument for saying that this method of finding additional finance for small companies which are suffering from the weight of direct taxation and Estate Duty is in one way better than Estate Duty concessions in that it is more selective, because the company which wishes to raise fresh capital from one of these institutions will have to show that it is efficient and that its prospects of continuing a profitable existence are good, whereas an Estate Duty concession would go indiscriminately to every company.
There are, of course, differences between family concerns. I do not wish to get involved in this sterile argument as to the relative merits of public and private companies. I am quite certain that that kind of argument would lead us nowhere. It is clear to anyone with experience of industry that there are in this country many family businesses which are first-rate businesses. There is within family businesses a certain corporate spirit and atmosphere which undoubtedly cannot be reproduced elsewhere, and that is a strong argument for doing all one can to assist the family business. On the other hand, that is not always the case. I think it must also be recognised that there are occasions when the continuation of family control is not necessarily conducive to the efficiency of the undertaking.
What it amounts to is this. On the question of the weight of duty, there have been considerable arguments advanced by my hon. Friends, but are they arguments of sufficient weight to induce my right hon. Friend to give to this class of asset a substantial special discriminatory concession which is not given to other business assets or to shares in private companies? I am afraid that I have to say that my right hon. Friend does not at the moment consider that the case for the special discriminatory treatment has been made out.
I should like to say a little more about death duties, and particularly about the operation of Section 55 of the 1940 Act, because undoubtedly that is a matter of the greatest importance. I was interested in the emphasis attached to it by my hon. Friend who moved this new Clause. There are reasons why the shares of small tightly-controlled private businesses should not be valued on their earnings or distribution, because in many cases the distributions over a period of years have no relation to the true value of the business. The object of the Inland Revenue is to try to arrive at an assessment of the business equivalent to what would have been paid by a buyer in the open market. Therefore, the Section provides that in the case of these closely controlled private companies one does not look at the distribution of dividends but at the net asset value.
I should like to say a word or two about the net asset value because there is a certain amount of misunderstanding about this point. It is generally thought that what happens is that the assets are valued piecemeal as physical assets and that that is the valuation on which Estate Duty is to be paid. But I am informed that that is not the case, because assets are valued not just as physical assets but as the assets of that particular company. If it can be shown that the valuation reached by a valuation of assets puts a greater value on the total shares of the company than is justified by the earnings record and profits prospects of that company, then allowance is made by the Estate Duty office for what is called negative goodwill. I may say that that is an expression with which Treasury Ministers are very familiar.
The point is that it is not purely the value of the assets as assets, but the value of the assets in the light of the position of the company, which is taken as the basis of the valuation under Section 55. There is undoubtedly a widespread feeling that the valuation under Section 55 is not fair. Here is a matter on which there is genuine dispute between the Inland Revenue authorities, who consider that the valuations reached are roughly equivalent to those which would be reached in an open market, and people who feel that the valuation is too high.
I have recently received interesting evidence, from people concerned in the provision of finance in these matters, that the great obstacle to the provision of finance is that the valuation of a company on the assets basis under Section 55 may be different from the valuation of the company as an investment prospect. For those reasons, my right hon. Friend has started a review of the death duties and of these anomalies that are arising, and particularly of the anomalies that are said to arise in the case of Section 55. Estate Duty was first introduced in 1894, and since then it has not received the attention of any body of persons and has not been thoroughly reviewed.
My right hon. Friend has, therefore, started and will press ahead with the review of these anomalies, and in particular under Section 55. He does not propose to appoint a committee for the purpose. He proposes to conduct this review himself with the assistance of his


official advisers, but, undoubtedly, recourse will be had to outside independent experts who are able to provide helpful information on the subject, and my right hon. Friend has asked me to say that he would be very glad at any time if hon. Members who are interested in this problem and have further practical information to offer will furnish him with it. Clearly, there is a widespread feeling that Section 55 is not working justly. On the other hand, there are strong arguments for saying that, in fact, the injustices are exaggerated, but this is a matter which must be thoroughly investigated, and my right hon. Friend has already started a review to that end.
I have endeavoured to explain why my right hon. Friend cannot accept this new Clause. He has considered it, as he considered the representations of the National Union of Manufacturers and other interested bodies, as well as those of hon. and right hon. Members of the House, with very great care, but he does not feel that the case has been made out for this special relief of Estate Duty for private industrial concerns. On the other hand, he feels that there is a very strong case for reviewing the operation of death duties in this regard, and, particularly, in regard to Section 55 of the Act of 1940. In those circumstances, it is my hope that my hon. Friend, after having had a full discussion on the matter, will consider withdrawing the new Clause.

Mr. Jay: The hon. Gentleman has made a statement which appears to go rather beyond the subject of the debate. He says that the Chancellor has decided to carry out a review of these anomalies arising in connection with death duties. Can he tell us what is the scope of the review, and whether it will refer purely to anomalies arising out of assessment for death duties? Will it apply to small or family businesses? Can the hon. Gentleman be a little clearer as to how wide it will go?

Mr. Maudling: The review will cover the anomalies which have arisen, or which are said to have arisen, in the assessment of death duties over the whole range, but with particular reference to this problem of Section 55 of the 1940 Act.

Sir W. Wakefield: In view of the statement made by the Economic Secretary, and the assurance given that some action will be taken in this matter, I beg to ask leave to withdraw the Motion.

Motion and Clause, by leave, withdrawn.

New Clause.—(OVERSEAS TAX HOLIDAYS.)

If Her Majesty by Order in Council declares that arrangements specified in the Order have been made with the Government of any territory outside the United Kingdom with a view to affording relief from the United Kingdom tax on income which has been relieved from tax payable under the laws of the territory concerned by specified concessions, the arrangements shall, notwithstanding anything in any enactment, have effect in relation to income tax, the profits tax, and the excess profits levy, in so far as they provide for relief from United Kingdom tax.—[Mr. Arbuthnot.]

Brought up, and read the First time.

Mr. John Arbuthnot: I beg to move, "That the Clause be read a Second time."

The Deputy-Chairman (Mr. Hopkin Morris): It may be for the convenience of the Committee if we discuss this new Clause together with the one on page 1743 —[Colonial, &amp;c, territories, allowances.]—in the name of the hon. Member for Colchester (Mr. Alport).

Mr. Arbuthnot: The basis behind this new Clause is the first Report of the Royal Commission on the Taxation of Profits and Income—the Radcliffe Report. The Radcliffe Commission made out the case for this new Clause so completely that it is not really necessary for me to occupy the time of the Committee for long, but there are two points which I want to put forward.
The intention of the new Clause is to try to do away with the taxation injustice done to some small companies starting up in overseas territories when they are registered in this country. Several overseas territories give special tax concessions to encourage new companies to start up in those countries. Many are within the Commonwealth, and some are Colonial Territories, which have decided that they want to encourage industry to set up within their boundaries. To encourage industry to do so, they give special taxation concessions, possibly for the first five years in the life of the company.
Where a company of that kind is registered in this country, the British taxation which that company suffers is such that it does away with the concession which the overseas territory intentionally tries to give to that company. There are two points of view from which we should consider this problem. The first is the point of view of the territory which is trying to encourage businesses to set up within its boundaries. These territories, finding that their efforts at encouragement are being nullified by the action of the Chancellor of the Exchequer, are, naturally, considerably annoyed. They feel that British taxation, in effect, is preventing them from giving the encouragement which they want to give to people to start up these businesses overseas.
The second point of view from which we should consider the matter is that of the companies themselves, because companies in that position are unfairly treated, as compared with their competitors which are not subject to British taxation but which operate in the same territory. It means that companies registered under a British registration find themselves competing under unfair conditions with their rivals in business in the same territory.
Therefore, for these two reasons, and for the reasons set out in the Report of the Radcliffe Commission, I hope that my hon. Friend will give a favourable answer and will be able to accept the new Clause.

6.15 p.m.

Mr. C. J. M. Alport: The Committee has decided that it will be convenient to discuss this Clause and the one in my name together, and, therefore, I think I would be entitled to point out that, although there is a similarity, in some respects, between the proposal which my hon. Friends and I have put forward and those in the new Clause which my hon. Friend the Member for Dover (Mr. Arbuthnot) has just moved, in actual fact, the scope of, and in some degree the principle behind, our proposal, differ from his. We have made it quite clear in the wording of our new Clause that, if it were accepted by my right hon. Friend, its operation would be only in respect of Colonial and Trusteeship Territories. Indeed, the effect which it would have upon the revenue of the United Kingdom, and generally in the territories concerned,

would be rather more limited, in some degree, than that proposed by my hon. Friend.
Our object is to relieve United Kingdom registered companies operating in Colonial and Trusteeship Territories from the disadvantages arising from the different basis of assessment of profits for the purpose of allowances in overseas territories, as compared with those operating in the United Kingdom. It may well be that, if I were permitted to move this particular new Clause, my right hon. Friend would have found it difficult to accept our wording, since we have drawn the Clause widely, but, nevertheless. I hope that he will accept the principle which we wish to establish, because, in our view, it has very great relevance to the question of providing the resources for British enterprise in the United Kingdom to play its proper part in developing backward territories overseas.
Let me reinforce the argument put forward by my hon. Friend, and say that United Kingdom registered firms have to face increasing competition from foreign firms in these overseas territories, and that the latter frequently enjoy the advantages of lower standard rates of taxation and a more generous system of allowances. The result is that the United Kingdom companies are compelled either to seek means of leaving the United Kingdom and registering in a Colonial or Trusteeship Territory overseas, or find themselves unable to withstand this competition and eventually go under.
A third possible result is that the resources of the territories concerned, which are essential both to the Colony and ourselves, remain undeveloped because no one is found willing to undertake the risk of such an enterprise with the disadvantages which exist under our present taxation law. All these three consequences, I submit, are directly contrary to the interests of the United Kingdom, and to our accepted policy of the expansion of British trade and enterprise and the full development of our resources overseas.
Our new Clause does not deal with the whole of a very complicated and many-sided problem, but I think that my right hon. Friend will agree that there are arguments for taking a number of bites


at this particular cherry. Indeed, he has taken a couple himself in Clauses of the Bill which have already been debated and agreed to by the Committee.
Perhaps I may bring forward the particular points which we have in mind and try to illustrate them. In certain territories the accepted system of cultivation is a sort of shifting agriculture. To maintain the rules of good husbandry, land which is cultivated for a period and has become exhausted is subsequently left fallow for anything up to 20 years. The use of fertilisers to put new heart into that land is uneconomic, and only the processes of nature and the lapse of time can restore fertility. In place of that land, new land is brought under cultivation. In certain colonial legislation the cost of preparing the new land is a permissible charge for allowance purposes, just as, in the United Kingdom, the use of fertilisers to rehabilitate land is allowed.
The problem of the Minister arises directly from the totally different natural conditions existing overseas from those in this country. In our case, the proper course is to employ fertilisers to rehabilitate the land but, in the case of some Colonial Territories a term of prolonged fallow is required. We think of fallow in terms of one or two years, but they think in terms of some two years to 20 years. The object is the same, the maintenance of a wise and fruitful standard of good husbandry. In the United Kingdom, the Commissioners of Inland Revenue will allow the cost of the work on new land and of maintaining it up to maturity, but not the cost of clearing it. Our proposed new Clause will place upon them an obligation to do so.
I have taken my illustration from the sphere of primary production. Our Clause, and, indeed, the problem itself, cover industrial development and mining, where the computation of expenditure for allowance purposes under colonial taxation takes into consideration the peculiar hazards with which overseas development is faced. I have tried to illustrate my point and to make it as quickly as I can.
I should like to end by saying to my hon. Friend the Economic Secretary that although I am not moving the Clause to which I have referred I would very sincerely press on him consideration of the

points which it contains. It would be a very unwise and unhappy state of affairs if we gave the impression that we were out to milk Colonial and Trusteeship Territories in the interests of United Kingdom revenue, and if our policy here in any way tended unfairly to handicap those territories.
I hope that the Chancellor when he is considering this point—I know it may not be possible for him to take action this year but I hope sincerely that he can do so next year—will bear in mind this matter and perhaps make an adjustment which will remove one of the handicaps under which British enterprise is suffering.

Mr. Albu: I am sorry that the hon. Member for Colchester (Mr. Alport) is not moving his proposed new Clause, because I should like to support it. I could not possibly support the Clause moved by his hon. Friend the Member for Dover (Mr. Arbuthnot) because it is altogether too wide and would encourage every type of investment in every type of company without any control whatever. In the last few years, even in the Commonwealth itself, there has been a substantial amount of investment which has been highly undesirable from the point of view of this country. It has been an export of capital which can only have had the effect of making our own balance of payments more difficult in the future. Most of us know the effect of a certain type of investment in Australia and other countries.
Where this takes place, the new Clause in the name of the hon. Member for Colchester is a very different kettle of fish. It is designed technically to deal with the problem which was brought up first at the Royal Commission, the problem of encouraging investment in the Colonial Territories, and particularly to ensure that the higher incidence of taxation—or, to put it the other way, the lower level of allowances—which might operate in this country as compared with some Colonial Territories would not involve our taking a part of the profits made in the Colonial Territories.
That is a highly desirable object. I am not quite sure whether the Clause of the hon. Member for Colchester is not too widely drawn, but I would have thought that it was a safeguard because,


by the very definition, Colonial Territories are under some sort of control from their home Government. Therefore, there must be some influence on the levels of initial allowance in the taxation systems of the Colonial Territories.
The hon. Member for Colchester has a lot more knowledge of this matter than I have. His speech in support of the proposed new Clause was altogether admirable and I hope that the Economic Secretary will promise to give it sympathetic consideration. It is a very narrow Clause, dealing with territories only within the control of Her Majesty's Government but dealing to a very large extent with matters which are very important for the economic health of the Commonwealth as a whole. Though I could not support the proposed new Clause of the hon. Member for Dover, I would certainly support the other.

Mr. G. P. Stevens: I can well understand the guilty conscience of the hon. Member for Edmonton (Mr. Albu) when he said that the proposed new Clause moved by my hon. Friend the Member for Dover (Mr. Arbuthnot) might encourage undesirable developments overseas. No doubt he had in mind the sponsorship by his right hon. Friend the Member for Dundee, West (Mr. Strachey) of the production of groundnuts. I think that was clear to all of us on this side of the Committee.
The taxation provisions of this country do not give to the United Kingdom developers in overseas territories the concessions which the legislatures of those countries feel should be given to new and expanding industries. The effect of Sections 347 and 348 of the Income Tax Act, 1952, laid down that the higher of the United Kingdom tax rate, or the Dominion, Colonial or foreign rate, shall be paid by the United Kingdom company. That is obviously, I should have thought, despite what the hon. Member for Edmonton has just said, a strong tax disincentive to pioneering overseas.
Many of us on this side of the Commit-tee are fond of talking about our vast Empire resources; here is a chance to do something concrete to help that policy along. It may be a good thing to help new businesses by providing that no taxes on income should be payable in the first

five years of the business, or by providing that the initial plant and machinery shall be written off in two or three years. The fact is that many countries do it and we should be eager to take advantage of it.
As my hon. Friend the Member for Dover has said in introducing the proposed new Clause, the arguments are twofold and clear. The existing situation acts as a disincentive to United Kingdom developers to exploit natural resources overseas for the benefit of all. Secondly, it increases foreign incentive to do the same thing, provided the foreign country passes on to its nationals the benefits which the local legislatures see fit to grant.

6.30 p.m.

Mr. Albu: This is extremely important because, from the way in which the hon. Member is developing his argument, it seems to me that he is supporting the new Clause in the name of his hon. Friend the Member for Colchester (Mr. Alport). He referred to Colonies, and legislatures, presumably of Colonies. I supported that. I said that I did not think it desirable to support every type of investment in other countries, for instance the building up of automobile engineering in the Argentine.

Mr. Stevens: I am glad to hear that the hon. Member was supporting my hon. Friend the Member for Colchester (Mr. Alport). So was I, and the hon. Member is now grumbling because I am supporting what he was supporting. I quite understand that.
Another point to bear in mind is that in general terms, before any United Kingdom company can export capital overseas for the development of new industries, Treasury sanction is required under Section 468 of the Income Tax Act, 1952— the "ring fence" Section. Last year I moved a new Clause to bring down that iron fence. The Chancellor, in reply, said that his Treasury advisers were bold pioneers and that so far there had been no case where the necessary sanction had been withheld. Let us be bolder still—as bold as they are already in the legislatures of West Africa and the West Indies.
It is true that this is a recommendation of the interim Report of the Royal Commission on the Taxation of Profits and


Income. It is of interest that the Commission considered it to be so urgent that they have not left it for the final report which may not be along for a considerable time.
They say, in paragraph 59 of their Report:
We regard it as urgent that the agreements we recommend should be entered into without delay.
That Report was signed in February, and if it was urgent nearly four months ago then it is urgent now. I accept the urgency and importance of that recommendation. I hope that the Economic Secretary will be able to say that the Chancellor thinks the same and that he will be able to give us some hope of acceptance of the recommendation.

Mr. N. Macpherson: I do not think there is very much between my hon. Friend the Member for Dover (Mr. Arbuthnot) and the hon. Member for Edmonton (Mr. Albu). The hon. Member for Edmonton considers the Clause moved by my hon. Friend the Member for Dover to be very much more wide than it is intended to be, but, after all, the power to make the arrangement remains with Her Majesty's Government.
This is not unilateral relief which it is suggested should be given wide and large. Indeed, the Radcliffe Report recommends quite clearly that no such unilateral relief should be given, but that it should be given after negotiation with such territories as it would be to the interest of Her Majesty's Government in the United Kingdom to encourage in the development of industries.
That being so, I do not think that the strictures which the hon. Member for Edmonton passed on this Clause are in any way justified. As my hon. Friend the Member for Langstone (Mr. Stevens) has just said, the Radcliffe recommendations are absolutely clear and urgent. The Commission recognise that where a concession is made in the ordinary rate of taxation by a territory to encourage industrial or agricultural development in that territory, that concession should be reflected in United Kingdom taxation. I think that we all agree that it would be quite wrong that that should be done automatically.
We have to become much more Commonwealth-minded in our concep-

tion of taxation as a whole. The idea that the United Kingdom Government should enter into negotiations on whether such concessions should be given or not is fundamentally right, because it means that the United Kingdom Government have a chance to say whether the industrial development in the territory concerned is to the advantage or otherwise of the Commonwealth as a whole.
That will bring influence to bear on tax relief by the territory and will cause United Kingdom capital rather than the capital of other countries to be invested there, provided that it is to the advantage of the Commonwealth as a whole that those industries should be established in the territory. That is the way in which we ought to start on these problems connected with the development of the Commonwealth.
The second new Clause deals with a rather different problem. The first new Clause deals with concessions in the normal rate of taxation. The second deals with the levels of taxation, that is the initial and annual allowances and any special allowances for climatic and other similar reasons, and ordinary rates which are lower than the similar rates in this country. My hon. Friend the Member for Colchester has so very clearly indicated the reason why such concessions should be made that I do not add anything to what he said.
The second new Clause is intended to cover a very wide range. It is intended to cover "industrial buildings or structures" and that involves a very wide range indeed. Under Section 271 of the Income Tax Act, 1952, it covers factories, buildings for the purposes of transport, dock, inland navigation, water, electricity or hydraulic power undertakings. It covers storage, mines, oil-wells, foreign plantations and ploughing or cultivating land.
On the other side, in which it seeks to give concessions, there is the clearance of land for agricultural and forestry purposes and the provision of machinery and plant for the purposes of mining, agriculture and forestry. Those are the purposes of the second new Clause. They are purposes which should be endorsed by the Committee and encouraged by the Commonwealth as a whole.

Mr. Bernard Braine: I am glad to support both these new Clauses, though I confess that I agree somewhat with the hon. Member for Edmonton (Mr. Albu) in that I should certainly have preferred to see the new Clause in the name of my hon. Friend the Member for Dover (Mr. Arbuthnot) confined to Commonwealth countries. I do not think that any of us in this Committee would dispute the dire necessity for investment in Colonial Territories, both to increase the production of food and raw materials for the sake of the world and to encourage the broadening of colonial economy for the sake of the colonial peoples.
By way of illustration, and in support of the general principles advanced in the new Clause proposed by my hon. Friend the Member for Dover, I should like to turn for a moment to the West Indies. There is no part of the Colonial Empire where the need for economic development is so pressing as it is there, where the population is increasing at such a rate that it is threatening to outstrip even the bare means of subsistence. If living standards are to be raised the means must come from some external source. It is coming through the medium of colonial welfare and development legislation. Nothing worth while can be done in the Colonial Territories unless something is done to eradicate disease and improve education; and how can those things be done unless the economy of the Colonies is expanded?
Yet the present high level of taxation here discourages the investment of risk capital in the Colonial Territories. It is perfectly natural, therefore, that the colonial governments in the West Indies and West Africa have sought to attract capital by making substantial tax concessions in respect of new industries. In Trinidad, for example, in the first five years after the erection of a factory, there is a tax holiday. In the sixth year the company is allowed to write off 40 per cent. of the original capital value of its plant and equipment and 10 per cent. of the value of its industrial buildings. It is allowed to import machinery, plant and equipment free of Customs duty.
As one would expect, in response to these concessions overseas capital has been flowing into the Caribbean Colonies. The interesting thing is that it has not

been coming from this country, but from Canada and the United States. It has not been coming from here because current British Income Tax completely offsets the effect of these concessions. It is an unbelievably foolish policy which nullifies everything the Colonial Office is seeking to do, and has been seeking to do for some years. It puzzles and angers our friends in the West Indies. It operates not only against the best interests of the colonial peoples but the interests of this country too, because we are ultimately responsible for the well-being, good government and prosperity of the Colonial Territories.
Our colonial policy is designed to equip the Colonies to stand on their own feet in the conditions which exist in the modern world. But consider what is happening. On the one hand, during the last seven years the British taxpayer has been helping to build up a structure of social services in the West Indian Colonies which, it is hoped, will be sustained ultimately out of the resources of the Colonies themselves, but on the other hand, by this practice, which has gone on for a long time, we are deliberately discouraging the establishment of new industries and new productivity.
I have always expected consistency from Chancellors, even if their actions have never commanded much popular approval ever since I read about Chancellor Morton, who perfected the technique called "Morton's fork," by which he extracted from those who lived ostentatiously a tribute to the Treasury because their wealth was manifest and, at the same time, extracted a tribute from those who lived modestly because, quite obviously, the economy they practised accumulated great wealth for them. That was consistency of a kind. But where is the consistency in this case? The Treasury, insatiable for revenue, is following a policy which is designed to undermine everything which the Colonial Office is seeking to do.
I would hazard a guess that the Colonial Office—not only under this Government but under the previous Government, when the first rumblings of discontent on this subject were heard—have been making strong representations. I am only sorry that those representations have not been made more strongly. The burden of our complaint is not that the


Treasury are collecting so much in tax as that they are denying to British enterprise benefits which the Colonial Territories, for reasons of their own, are prepared to confer.
It may be argued that a British company registered here but operating overseas can avoid all these unpleasant difficulties by setting up subsidiaries in the Colonies, but even then tax must be paid on profits remitted home. A vital principle is at stake here. The matter of control is fundamental. The only kind of development we shall see in the Colonial Territories with any risk attached to it is development by long-established companies already operating in the Colonies, who know something of the prevailing labour conditions and market possibilities. Such companies will not contemplate the idea of starting up subsidiaries if they are not to exercise control over them. It is unreasonable to expect them to follow that kind of policy.
I press the Economic Secretary to lend a favourable ear to these two new Clauses, even if he cannot accept them now, because so much depends upon what we are prepared to do in the next few years to accelerate the economic development of the Colonial Territories. There is so much to do. There is not much time left. Time is not our friend in this respect; it is our enemy. I therefore urge my hon. Friend to consider most favourably these two new Clauses.

6.45 p.m.

Mr. Maudling: These two Clauses, which are being considered together, are concerned with matters of very great importance and, while they are different in certain important respects, some of the principles that underlie them are identical. I hope it will be convenient to the Committee if I deal with them both at the same time.
As the hon. Member for Colchesier (Mr. Alport) pointed out, there are important differences between his Clause and that which was moved by my hon. Friend the Member for Dover (Mr. Arbuthnot). In the first place, the former is confined to the Colonial Territories. I agree that if action on these lines is to be taken there is a very strong argument for taking it in the Commonwealth generally and in the Colonial Territories in particular.
There are two other differences between the new Clause moved by my hon. Friend the Member for Colchester and that moved by my hon. Friend the Member for Dover. First, under the former the existing industries would get the advantage of the Clause on any capital allowances for which they qualified, as well as pioneer industries which I am not sure is an advantage; and, secondly, it refers only to a capital allowance and refuses relief for other allowances, such as the so-called tax "holidays," which would be covered by the new Clause moved by my hon. Friend the Member for Dover.
That illustrates the complexity of this problem, which is even further illustrated by the example which my hon. Friend the Member for Colchester gave, about the plantation activities. He was probably thinking of the sisal companies and the allowance given for the clearing and first planting of land in the Colonies, which is not given over here, but I am advised that his new Clause would not cover that matter. That only shows how complex is this problem.
To turn from the details to the principles, which are the important things, both these new Clauses are based on the interim Report of the Royal Commission. That interim Report was requested by my right hon. Friend in view of the urgency and importance of this matter of the taxation of profits and overseas earnings. That Report made three main recommendations, two of which—the first related to blocked overseas earnings and the other to unilateral relief from double taxation—my right hon. Friend has accepted.
The third, related to special overseas allowances and tax-free holidays, he has not been able to accept for inclusion in this Bill. My right hon. Friend has great sympathy with the principle, because of the arguments which have been put forward from both sides of the Committee. The arguments for the principle of this proposal are very strong, but there are certain practical difficulties which I must put to the Committee and which my right hon. Friend had to weigh up in considering whether or not to include legislation on these lines in this year's Bill.
For example, if an overseas territory gives an accelerated rate of allowance, under this proposal the United Kingdom


taxpayer will be benefiting by being taxed at the overseas rate of allowance rather than at our rate but, since the allowance has been accelerated overseas, in later years it will be lower.
In those circumstances, is the taxpayer to gain both in the initial stages from the accelerated rate overseas and in the later stages from the continuation of what will then be relatively the higher rate in the United Kingdom tax system? That would mean, of course, that for the period of the life of the asset the taxpayer would get more than the total initial cost of the asset.
Obviously, some way would have to be found of getting over that difficulty, but I am advised that at present it would be almost impracticable to work out a system of taxation to deal with it. That difficulty arises especially in mining operations where depletion allowances are granted overseas and where equivalent relief is granted under our United Kingdom taxation, though not necessarily calculated on the same basis.
Another important point raised by the Royal Commission, and to which reference has not, I think, already been made, is to what extent, if any, the benefit of any such arrangement as this should be passed on to shareholders. I am quite sure that my hon. Friends have strong views on this subject. The Royal Commission did not feel ready at the time to give a considered view upon it, and decided to leave it over for inclusion in their final Report. But, of course, it would not be possible to legislate at the moment on the matter without deciding on the specific point of how schemes of this kind would affect shareholders, because, after all, it is most important to have regard to the interests of the people who are asked to invest their money.
Those are some of the practical reasons which my right hon. Friend had to weigh when considering whether or not to legislate on these lines this year. He has already done a number of things to assist overseas enterprises. The subjects dealt with in Clauses 19 and 24, to which I have already referred, are rather expensive concessions. In Clause 15, there is a reference to overseas pastoral companies, which my hon. Friend the Member for Colchester has in mind and which will be of some assistance. In addition,

there are the general reductions in taxation.
Again, there are the initial allowances, the general 20 per cent. and the special 40 per cent. allowances for mining, neither of which, of course, will have been in the minds of the Royal Commission when they made their interim Report, because at that time the initial allowances had not been restored. These allowances will go a long way to meeting the points which my hon. Friends have in mind because it is by accelerating allowances that overseas Governments will, in the schemes they have in mind, try to give special consideration to pioneer industries.
My right hon. Friend faced this situation when he accepted two out of the three of the recommendations. The third presented quite definite practical difficulties in legislating. In the meantime, by his initial allowances in particular, my right hon. Friend has given very substantial assistance to overseas enterprises, a matter which could not have been known to the Royal Commission at the time they made their recommendations.
In all these circumstances, my Tight hon. Friend did not feel that he could include in this year's Finance Bill the complicated legislation which would be necessary to carry out the recommendations in the Report, and he also felt it would be of advantage to have the Royal Commission's further advice, particularly on the important point which they left over for their final Report.
I wish to make it quite clear that my right hon. Friend in no way rejects the principle which underlies the Report. Indeed, he greatly sympathises with it. He has not closed his mind on it, and will consider it again as soon as the Royal Commission have given it further consideration. In those circumstances, he hopes that my hon. Friends will not press him to include legislation of that kind in this year's Finance Bill, because he does not feel that he would be justified in so doing.

Mr. Arbuthnot: I thank my hon. Friend for the encouraging way in which he has replied to this debate, and, in view of what he has said, I beg to ask leave to withdraw the Motion.

Motion and Clause, by leave, withdrawn.

New Clause.—(ELIGIBILITY FOR MEMBERSHIP OF SUPERANNUATION FUNDS AND DEDUCTIONS ALLOWABLE IN RESPECT OF BACK CONTRIBUTIONS THERETO.)

Where an employed person at any time becomes eligible to be a contributory member of a superannuation fund and is by virtue of his previous period of service permitted to begin membership of that fund from a date prior to his becoming eligible subject to the payment by him of back contributions, the amount of such back contributions shall for the purpose of assessment for income tax under Schedule E be allowed to be deducted as an expense incurred in the year in which such back contributions are paid or if the same shall be payable by annual instalments, such annual instalments shall be allowed to be deducted as an expense in the year or years in which the instalments are respectively paid.—[Mr. West.]

Brought up, and read the First time.

Mr. Granville West: I beg to move, "That the Clause be read a Second time."
This new Clause is intended to remove an unfair discrimination against a considerable body of employed persons on their becoming contributory members of a superannuation scheme. As the Committee knows, there is a good deal of sympathy in all parts for superannuation schemes as such, and I am sorry that the Chancellor, at any rate, does not think that the argument which we are putting forward on this matter is worthy of his attention.

The Chancellor of the Exchequer (Mr. R. A. Butler): The hon. Gentleman does me an injustice. I was just saying to my hon. Friend that I was glad we had reached the subject because it was one which interested me.

Mr. West: I am very glad that the Chancellor has given that intimation. He will understand, of course, that I was not in a position to understand from the cordial conversation in which he appeared to be indulging with his hon. Friend that was the reaction which this new Clause produced in him. At any rate, I think it clear that hon. Members on all sides of the Committee approve of superannuation schemes as such, and from time to time, I believe, the legislature has endeavoured to encourage superannuation schemes by giving tax allowances to those who make their contributions towards such schemes, whether they be employed persons or employers.
The point with which I am trying to deal in this new Clause is that an unfair discrimination operates in regard to a large body of employed persons. We know that under the Finance Act, 1921, contributions made to superannuation funds by employed persons are regarded as a deductible expense in the year in which they are paid. That means that a person who becomes a member of a superannuation scheme has the benefit of tax relief throughout the whole period of his membership.
There are, of course, many superannuation schemes which are restricted in their membership. Many of them are confined solely to salaried officers of the concern, and, therefore, those people who have been fortunate enough to be employed in a salaried capacity in the first instance have the advantage of tax relief on their contributions throughout the whole period of their membership.
Wage earners are often excluded from the benefits of a superannuation scheme, but there are many schemes which provide that when a wage earner becomes promoted to the salaried class he is eligible to become a member. Having regard to the length of service with a particular employer, it is often provided that when a man becomes eligible to join a scheme he shall be permitted to antedate his membership, subject to his paying back contributions.
7.0 p.m.
It is to the question of payment of back contributions that this new Clause is directed, because it is clear that on the authority of a case that was decided in 1950 the payment of back contributions is not regarded as an ordinary annual contribution, and, therefore, back contributions do not rank for tax relief. We feel that is unfair and something with which this Committee should deal because it operates most harshly against those very people whom we should seek to aid. We realise, of course, that the precise wording of the Clause may not perhaps meet with the complete satisfaction of the Chancellor, but we hope, at any rate, that the principle underlying it will meet with his approval.
I want to draw the attention of the Committee to a further point in support of my case. Although the wage earner who is promoted and becomes eligible to be a member of a superannuation fund is


not permitted to have his back contributions deductible as an expense in the Income Tax year, an employer who makes a payment which is not an ordinary annual payment can nevertheless have it regarded as an expense in the year of payment, or, if the Commissioners of Inland Revenue think fit, it can be spread over a period of years. That is the principle which we seek to apply to wage earners who are promoted and become entitled to participate in a superannuation scheme and have to pay back contributions to qualify them for benefit through their period of service.
That briefly, is the case. We hope that its substance will find a response in the heart of the Chancellor. I hope I have not been unduly long in stating the case, and that that will also encourage the Chancellor to give it sympathetic consideration.

Mr. M. Turner-Samuels: I very readily support this new Clause, and I am sure that the Chancellor will consider what can be done about it. My hon. Friend the Member for Pontypool (Mr. West) has explained that it deals with back contributions and tax allowances in respect of them. The only way in which the contributions referred to in the Clause differ from their normal condition of annual payment is that what is being paid in this case is a cumulative sum, and it is because the sum is cumulative that it is not eligible for tax allowance. Had the money been paid annually it would have been eligible for the allowances for which the Clause asks.
I hope that the Chancellor's second response will be as encouraging as was his first intervention, in which he said he was interested in the Clause. I want him also to take into consideration the fact that we are merely asking for employees what employers already enjoy. It does not seem too much to ask that that concession should be granted. I should also like the Treasury to appreciate that unless the concession asked for by the new Clause is granted, the Treasury are really taking an advantage which they are, in fairness, not entitled to take, because if the payment involved had proceeded in the normal way of annual payment, the allowances in respect of tax would have been made. It means that the Treasury are getting the benefit of the cumulative

payment, to which, morally, they are not entitled.
One understands that points of drafting about the Clause may have to be considered. It may even be that the matter is bound up with embarrassments in connection with investigations which are at present being made over a wider field of similar matters, and one appreciates that that would have to be taken into consideration. Nevertheless, I urge the Government to look at the Clause on the basis that it has very strong merits and a very strong moral basis. Although, at the moment, there may be embarrassments and difficulties, I hope we shall be encouraged by being told that the matter will be looked into and that, when the other problems I have indicated have been settled, an attempt will be made to right what is undoubtedly a wrong.

The Financial Secretary to the Treasury (Mr. John Boyd-Carpenter): I agree with the hon. Member for Pontypool (Mr. West) that this is a topic which will arouse sympathy in all quarters of the Committee and that there is here a real point of substance. It is true that this point of substance affects a substantial number of people, in particular a section of the community which has succeeded, very often by its own efforts, in improving its position, and, therefore, a section of the community with which all hon. Members of the Committee will feel very considerable sympathy.
The hon. Member for Pontypool admitted, as did his hon. and learned Friend the Member for Gloucester (Mr. Turner-Samuels) that, as drafted, the Clause might well contain a number of defects. I have had far too much experience of attempting to draft Amendments without the assistance which is available to those who sit on this side of the Committee to seek to make much of that point against Amendments which are tabled. Nevertheless, it is a fact that the proposed Clause does not contain the necessary safeguards against abuse which would have to be incorporated in any such Clause. It does not contain protection against abuse of its provisions, in particular, in connection with bogus superannuation funds. Hon. Members will realise that in dealing with these matters in these days of high taxation it is necessary to be very careful that one does not provide a loophole for ingenious people who desire


not to bear the same burden of taxation as their less ingenious fellow countrymen.
There is a further consideration which I must put to the Committee. The hon. and learned Member for Gloucester indicated that he, too, had in mind the fact that the whole class of topics relating to taxation treatment of superannuation provisions is now before the Millard Tucker Committee. I understand that the whole subject is in an advanced stage of examination and that the drafting of the report of that Committee is now in progress. All hon. Members will agree that in those circumstances this Committee would be very ill-advised to legislate on one issue, whatever its merits, within the scope of the Millard Tucker review of the whole issue.
I have said enough, I hope—as did my right hon. Friend in an intervention—to indicate that we appreciate that there is a point of real substance here. It is clear that it is a point which my right hon. Friend will have to consider, and consider carefully, in the light of what the Millard Tucker Committee recommends. However, it would be wrong to pick this item out of the general topic and legislate upon it at the moment at which the Committee is drafting its Report. I assure hon. Members, as I have already done, that, when he gets the Millard Tucker recommendations, my right hon. Friend will bear in mind this point in particular with a view to considering what, in the light of those recommendations, it is sensible to suggest to Parliament.

Mr. Jay: I agree that there is force in the Financial Secretary's reminder that the point raised by the proposed Clause comes within the field of the Millard Tucker Committee, but as we are all agreed that it is point of importance, can the hon. Gentleman assure us, first, that the Millard Tucker report will definitely cover it, and, secondly, that the report will be available fairly soon? Perhaps the hon. Gentleman can tell us how soon he expects it.

Mr. Boyd-Carpenter: On the second point, I cannot say more than I have said —that drafting is taking place. The right hon. Gentleman has, I think, sufficient experience of drafting to know that the period of drafting sometimes takes longer in one case than in another. As regards

the first point, I cannot pretend to anticipate how the Report will deal with the subject matters within its purview, but it seems to me—and I know that the right hon. Gentleman will agree with me—that this is within its terms of reference. The decisions on what is to be done in the light of what the Committee say or do not say will lie with my right hon. Friend. It is clearly within the terms of reference, and I think that we must wait for the report.

Mr. Houghton: I think that we can probably expect the Millard Tucker Committee to deal with this aspect of contributory superannuation schemes. The Financial Secretary will remember that one reference in particular to the Millard Tucker Committee was superannuation and pensions for self-employed persons with special relation to professional persons and those in business on their own, and in whose cases probably some form of single premium annuity provision is a common feature of their own pension provisions. In any event, in most of these cases some kind of retrospective payment is part of the arrangements they make for their own retirement, and it is very likely, therefore, that the Millard Tucker Committee will have to relate anything which it says on that aspect of the matter to the present taxation treatment of retrospective contributions under contributory vocational schemes.
There is one point which, I think, neither of my hon. Friends has mentioned, and which will be familiar to Members of the Committee on both sides. That is the increasing difficulty of middle-aged men getting employment by firms which have superannuation schemes. I have been much impressed and distressed by the experience of a friend of mine who has recently come back from India after holding executive positions there on finishing a term in the Indian Army. He is only 40 years of age, and naturally he is a person requiring a position of responsibility, having held similar posts, and he says that wherever he went, they said, "We have a staff superannuation scheme here, and you are a bit old to go into it. Without a retrospective contribution we cannot admit you. You have to find the contribution without any tax relief." In some cases they have not even offered


him the opportunity of making back payments. He was told: "You cannot come in here because our scheme does not readily admit persons of your age to come into this scheme for the first time."
Unless we are very careful this very welcome provision, which is being made in many industries and by many firms, may become a stranglehold on the mobility of labour in different forms and at various levels. We do not want to stop a responsible movement of labour between one firm and another and one industry and another, and we do not want superannuation schemes to stand in the way. That is one aspect of the matter which, I think, is important.
I need not enlarge on what the Financial Secretary has said about the necessary safeguards in dealing with tax relief on superannuation schemes. The Committee will remember a whole string of Clauses which we introduced into the Finance Bill a few years ago, now Sections 386, etc., of the Income Tax Act, 1952, in which it was necessary to provide all sorts of safeguards against the misuse of superannuation provisions, especially by those who were in controlling posts in business.
I think that my hon. Friends have made a point here of considerable importance and I hope that the aspect of the matter which I have mentioned will be borne in mind when the Millard Tucker Committee Report is received.

7.15 p.m.

Mr. Arthur Moyle: I do not propose to detain the Committee for more than a minute or two. I rise to support the Clause introduced by my hon. Friend the Member for Pontypool (Mr. West). It has always been a puzzle to me why it is that under the Local Government Superannuation Act, 1937, the Treasury have always regarded the purchase of pension rights as ranking for exemption from Income Tax, yet in respect of superannuation schemes promoted by an industry, either by means of a trust fund or other means, where one gets precisely the same circumstances and where it weighs most heavily on the manual worker because he is always at the end of the queue when it comes to the distribution of pension rights, he has no exemption from

Income Tax in respect of the payments he makes for past services to enable him to get a better superannuation allowance on retirement than would otherwise be the case if a long period of his service was non-contributory.
I was glad to hear the Financial Secretary's sympathetic observations, and I would conclude by saying that I think it is a wrong discrimination and one which certainly possesses no equity at all in relationship between manual workers in industry and those employed in local government or in the Civil Service, that one body of workers should get exemption from Income Tax for such payments when that is not the case when it comes to private superannuation and pension schemes within industry generally.

Mr. Hugh Gaitskell: I think that the Committee are indebted to my hon. Friends for raising this matter. There seems to be no doubt, and I do not think that it has been disputed on either side of the Committee, that there is here a very anomalous position. The Financial Secretary explained that he himself thought that this was a real point of substance. When he began his speech I hoped that he was going to end it with at least a promise of a new Clause drafted by the Government to be inserted at the Report stage.
That brings me to a question which I want to ask him. He admits, as I understand it, that what my hon. Friends have said is in fact correct, that the contention is reasonable, and that a change ought to be made. He says that the drafting of the Clause is deficient in various ways, which is not surprising and very often happens when the Opposition draft without the assistance of the skilled personnel available to the Government. He then falls back on the fact that the Millard Tucker Committee are considering this whole matter.
Of course there are circumstances in which that is a reasonable excuse, circumstances in which to make a change in the law in advance of a report might lead to further complications, but he did not explain to us what precisely these complications were. Will he please tell us why, if the Government agree with what my hon. Friends have said, it is not possible for them to draft a Clause and insert it in the Bill on the Report stage? Although


the Millard Tucker Committee Report is likely to be published soon, so we understand, that means, of course, that the law cannot be changed at the earliest until next year, and we cannot even be sure of that. We do not know for certain that this point will be covered in their list of recommendations, and I think that in those circumstances the Committee are entitled to a fuller explanation from the Government as to why it is they do not wish to change the law now. What is the difficulty that would arise, if these points of substance were correct, supposing the law were to be altered?

Mr. Boyd-Carpenter: Yes, I gladly respond to the right hon. Gentleman's invitation. In the first place, the point that I hoped I made clear to the Committee was that we see that there is a point of substance here; but I did not commit myself to the view that it was necessarily being dealt with in the best way by the precise proposals put forward. One example is this, and here we come directly to the right hon. Gentleman's point as to the interaction between what it may be found desirable to do in the light of the Millard Tucker Committee's recommendations.
The Clause as drafted maintains the present existing general differentiation between the treatment of superannuation based on superannuation funds and superannuation based upon assurance policies. It perpetuates that differentiation. I do not know, nor does any Member of the Committee know at this stage, what view of that extremely important question the Millard Tucker Committee will take, but it clearly would be, it seems to me, wrong for us to legislate in the sense of accepting that existing differentiation at least until we know whether the Millard Tucker recommendations are to be in favour or against its perpetuation.
That, I think, is the major consideration, apart from the more general one with which the right hon. Gentleman will be perfectly familiar, that it is extremely inconvenient to legislate on a particular point in a subject when it is at least probable that one will be having to recommend legislation somewhat more widely over the field before very long. That is the general consideration, with

which the right hon. Gentleman is familiar, and which, therefore, I do not need to labour. There is the particular one of the differentiation between schemes financed in the two ways that I have mentioned which could give rise to very considerable difficulty if the Millard Tucker Committee in its recommendations took a certain view and if my right hon. Friend, on considering them, accepted it.
That is why, with some reluctance, as I have already said, and repeat, I cannot accept the new Clause, though there is a real point here which we shall certainly consider very carefully in the light of the Millard Tucker recommendations when we get them.

Question put, and negatived.

New Clause.—(HEAVY WINES.)

Section four of the Finance Act, 1949 (which imposes duties of customs on wines), shall have effect as if the Second Schedule to that Act were amended by the substitution of £ "1 5 0" and £ "0 15 0," for £ "2100" and £"20 0," respectively, as the rates of customs duty for wines other than light wines, being still and not in bottle, of non-Empire production and of Empire production, respectively.— [Mr. N. Macpherson.]

Brought up, and read the First time.

Mr. N. Macpherson: I beg to move, "That the Clause be read a Second time."
The object of this Clause is to reduce the taxation on heavy wines from £2 10s. to £1 5s. per gallon in the case of foreign wines and from £2 to 15s. in the case of Empire grown wines. In 1949, the late Sir Stafford Cripps reduced the duty on light wines in cask from 25s. to 13s. with a 2s. Imperial Preference. He left unaffected the duty on light wines in bottles at 27s. 6d. with a 3s. preference, and he also left heavy wines in cask at the heavy rate of 50s. on foreign wines and 40s. on Empire wines, with additional charges of 2s. 6d. and 1s. 6d. respectively on wines imported in bottle.
I think it is important to have a look at Sir Stafford Cripps's own reasons for doing this. This is what he said in his Budget speech in April, 1949:
I propose to make a substantial reduction in these duties, and I hope that this will, in due course, bring about an increase in consumption, which will not only benefit the Exchequer, but will also assist our trade with France and with the wine-producing countries of the Commonwealth."—[OFFICIAL REPORT, 6th April, 1949; Vol. 463, c. 2092.]


What has been the result? The Exchequer has certainly not suffered. Indeed, it can be said that the Exchequer has benefited. Imports of wines from France rose from 564,000 gallons in 1949 to an average of 1,716,000 gallons in the years 1951 and 1952. On the other hand, imports of wines from the Commonwealth, which had averaged some 4,316,000 gallons in the years 1947 and 1948, and were just under 2 million gallons in 1949, were slightly lower in 1952. What was the reason for that? The reason was given by Sir Stafford Cripps, almost in anticipation, during the Committee stage of the Finance Bill in 1949, when he admitted that most of the Commonwealth wines imported into the United Kingdom were heavy wines, that is, not exceeding 27 degrees proof spirit, and, therefore, would not benefit at all from the concession he made at that time.
One of the principal reasons for this, of course, is that light wines do not travel well from over the other side of the Equator, so that Sir Stafford Cripps's concession, so far from helping the Commonwealth trade, actually handicapped it. I suggest that it is high time that that handicap was removed.
In pre-war days the duty on heavy wines was 8s. per gallon with a 50 per cent. Preference, and on light wines it was 4s., also with a 50 per cent. Preference. Today, the duty on Empire heavy wines is 10 times what it was prewar, while the duty on European light wines is the comparatively mere matter of three and a quarter times. The effect on Empire wines is all the more serious because of the practice of importing European wines at under 25 degrees proof and subsequently fortifying them —that, I believe, is the expression used— and raising them to over 27 degrees proof.
Sir Stafford Cripps's action directly encouraged this practice to the detriment of the Empire producers. The duty on a wine of over 27 degrees proof is nearly four times that on a wine of 25 degrees proof, and that is not only manifestly unfair but is bound to cause a distortion in the wine trade, and that distortion should be corrected as quickly as possible, because the longer it is continued, the more vested interests it creates, the more difficult it will be to alter it.
What is, perhaps, especially remarkable is that this favouritism shown for light wines by a Socialist Chancellor of the Exchequer, in so far as it discriminates between one section of the community and another, discriminates in favour of the well-to-do. Light wines are mainly consumed by the richer sections of the community, whereas before the war the Empire ports and sherries were becoming more and more popular with the less well-to-do.
All that we are asking the Chancellor to do now is to do for heavy wines what the then Chancellor of the Exchequer did for light wines in 1949, and bring them once again into something like the same relationship as existed before the war. We do not go quite so far as to restore the relative position between Empire heavy wines and European light wines as existed before the war. Then, of course, the duty was identical. We still leave a slight margin in favour of the European wines.
I appeal to the Financial Secretary to reduce this duty. It is a crippling discrimination against Empire wines. I quite realise that it will benefit other producers at the same time, but we ask my hon. Friend to do three things which, I think, will be dear to his own heart: first, to help Commonwealth trade; secondly, to rectify an injustice; and, thirdly, to give pleasure to many less well-to-do people, who like a glass of Empire wine.
All this he can do in all probability without sacrifice to the Exchequer. The reduction in the duty on light wines has actually benefited the Exchequer. In 1948–49 the clearance of light wines in casks amounted to 985,000 gallons with the duty halved, and in 1950–51 they were just over 3 million gallons so that the Exchequer actually benefited. What we are suggesting is that the Chancellor will do good all round if he accepts this new Clause, and I commend it to the Committee and the Government.

7.30 p.m.

Mr. Ronald Russell: I beg to support the new Clause, which has been moved so admirably and comprehensively by my hon. Friend the Member for Dumfries (Mr. N. Macpherson). Three years ago, when several of my hon. Friends and I were sitting on the other side of the Committee, we tabled a new Clause designed to reduce the duty


on Empire wines only. I must confess that I am in one sense sorry that this new Clause does not do the same thing. We were told by the then Financial Secretary to the Treasury, the right hon. Gentleman the Member for Battersea, North (Mr. Jay) that that was ruled out by the General Agreement on Tariffs and Trade, which, of course, prevents any increase in the preference on Empire wines. My hon. Friend has taken care to avoid that pitfall in putting down this new Clause by proposing a reduced rate on both foreign and Empire wine, leaving the preference at exactly the same rate.
I should like to emphasise what he has said about the very heavy discrimination against Empire wines. It is rather incredible to think that the duty on Empire heavy wine should be 10 times what it was before the war, whereas the duty on heavy foreign wines is only about six times what it was before the war. I should also like to emphasise that the heavy wine industry in Victoria, Australia, has been developed to a great extent by ex-Service men of both world wars. Their occupation will be endangered if there is a continuation of these very exorbitant duties on Empire wine, because they will tend to reduce consumption very much more.
I should also like to stress in another form the point put by my hon. Friend about the result of the reduction of duty on light wines by Sir Stafford Cripps four years ago. I understand that it resulted in an increase in the receipts from the duty by 50 per cent. That is a very satisfactory result, which ought to encourage my hon. Friend to think kindly about this new Clause.
There has also been reference to the type of consumer who likes heavy wines. I understand that of all the port drunk in this country before the war nearly two-thirds was supplied through public houses, mainly in the form of a glass of port. That shows with which section of the community these heavy wines were most popular. It was not with those who go to London clubs, and who, some people imagine, are the only people who drink port wine.
Another point is that the purchase cost of foreign or Empire wines is very low. Most of the cost goes on duty, and, therefore, any increase in the imports of foreign wine will only mean a very small

amount of foreign currency. I hope that the Treasury will not be frightened by that particular point.
In conclusion, I hope that my hon. Friend the Financial Secretary will be able to look favourably upon this Clause. As I said at the beginning, I wish it applied to Empire wines only, because I believe we ought to do everything possible to encourage those wine-growers. I realise that at the moment the General Agreement on Tariffs and Trade rules out any actual increase in the preference, but this reduction in duty which my hon. Friend proposes would have the effect of increasing the proportion of preference, and, therefore, it ought to be of some benefit to Empire wines.

Sir Robert Cary: I am in full sympathy with this new Clause moved by my hon. Friend, the Member for Dumfries (Mr. N. Macpher-son) in favour of high strength wines. At the same time, I think it will jeopardise the present margin, which is 9s. 6d., which exists between the high strength British and the high strength. Empire wines. The Clause as it stands is proposing a reduction of 25s., reducing the British high strength duty below the British low strength duty, which is absurd.
I would ask my hon. Friend the Financial Secretary, if he is thinking of accepting this new Clause, to preserve the margin and, therefore, the maximum by which the Treasury could reduce the high strength duties would be 20s. all round. This would then result in there being only one rate of duty applicable to British wines, the same position as existed before 1947.
What is really required is an extension of this Clause to cover not only Section 4 of the Finance Act, 1949, which imposes the duties of Customs on wines, but Section 5 of the Finance Act, 1949, which imposes duties of excise on sweet wines. If the Clause were altered to that extent it would maintain the margin that I have in mind.
I was interested in the observations of my hon. Friend the Member for Wembley, South (Mr. Russell) about port in this country. Last night in the Library I was examining a debate similar to this which took place some years ago. The Committee embarked upon a search as to what is a pipe of port. I became interested in


this long argument. It went on in Committee for some time, but there was no conclusion except that it reached the foundation for an all-night Sitting. I hope that that will not be the example on this occasion.
Nevertheless, in a moment of lightness I tried to find out what a pipe of port really is, and I hope my hon. Friend the Financial Secretary will be able to give us the true definition when he replies. I looked it up in Murray's Dictionary and they give it as 126 old-wine gallons. I looked it up in Pears' Cyclopaedia and they said that it was 115 gallons. Nuttall's Dictionary gave it as 105 Imperial gallons, a distinguished wine merchant in St. James's Street said it was 56 or 57 dozens, while the Smoke Room waiter said it was a mighty drop of port. As I said, perhaps my hon. Friend will give us the exact answer.

Mr. Glenvil Hall: Perhaps I might intervene before the Financial Secretary replies if only for the reason that it will give him the opportunity of answering one or two questions which I should like to put to him. As I understand the hon. Member for Dumfries (Mr. N. Macpherson), his reason for moving it is that the consumption of light wine has considerably dropped and that has been detrimental to the trade which up to now has obtained between us and the rest of the Commonwealth.

Mr. N. Macpherson: I should like to correct the right hon. Gentleman. It is not that the consumption of light wine has dropped. It is that the consumption of light wine has increased while the consumption of heavy wines has remained stationary or dropped away.

Mr. Glenvil Hall: I am much obliged. That helps me considerably in the argument I was about to put forward.
I remember very well the change to which reference has been made being introduced into the Finance Bill of 1949 by my late right hon. Friend Sir Stafford Cripps. He did it deliberately to help the light wines to a bigger and better market. I was at the Treasury myself at the time and I remember that we found that between 1948 and 1949 there had been a considerable drop in the consumption of what are called Empire wines, that is, light wines from Australia

and the Union of South Africa. To help them, and also to help the wine industry of France, the then Chancellor of the Exchequer made these changes. From what the hon. Gentleman has said, it is obvious that they have had the effect desired at that time.
We were asked then why it was that we had not made similar changes so far as heavy wines were concerned. I do not know to what heavy wines the hon. Gentleman is referring, but I suppose quite a volume of those heavy wines would come from Portugal. One of the difficulties—I would like to ask the Financial Secretary if it still obtains— was that we had not the currency to spend on this type of luxury so far as Portugal was concerned, and this was one of the ways of preventing too great a trade being done at that time with Portugal. Not that any of us wanted to keep Portuguese heavy wines out if circumstances had been different.
I would remind the Committee that although it was true that nothing was done in the Finance Bill of 1949 for heavy wines, a good deal had been done by the then Chancellor of the Exchequer the previous year. He had increased the preference on heavy Empire wines from 4s. to 10s., so it was thought that it was the turn of the light wines in 1949. When we come to deal with the question of Customs duty on wines, either light or heavy, we come unfortunately up against both the Ottawa Agreement and the agreement made at Geneva.
We have no feeling on this matter on this side of the Committee—except perhaps my hon. Friend the Member for Ealing, North (Mr. J. Hudson). It makes very little difference to us, but is it the fact that if a change were made at this time in order to help the heavy wine industry, it would be difficult so to do in the light of agreements made? In addition, I would like to ask the Financial Secretary what it would cost if the proposals made by his hon. Friend were acceded to.

Mr. Macpherson: Does the right hon. Gentleman realise that in 1948 the amount of light wine that came from the Commonwealth was less than one-sixth of the total amount of wines that came from the Commonwealth, even at that time?

Mr. Glenvil Hall: Yes, and that helps to prove the case I was trying to make, that something had to be done then to help the light wine industry, particularly the light wine trade with the Commonwealth.

Mr. Macpherson: But it has not done it.

7.45 p.m.

Mr. Boyd-Carpenter: One question I will seek the leave of the Committee not to answer is that put by my hon. Friend the Member for Manchester, Withington (Sir R. Cary), who asked me to define a pipe of port. If that be the responsibility of anybody in the House of Commons I suggest that he goes to one of the Law Officers, who can define the subject with experienced skill.
I agree with the hon. Gentleman the Member for Dumfries (Mr. N. Macpherson) that this is an important matter in many respects, and I hasten to assure him that I have no doctrinaire bias or antipathy against the subject matter of the new Clause. That is particularly so at this hour of the day. That there is an important issue is beyond argument, but perhaps my hon. Friend has failed to appreciate some of its complexities, to which I will refer in a moment.
In view of something that was said by my hon. Friend the Member for Wembley, South (Mr. Russell) about the Australian aspect of the question, I want to add a little to what he said. Last summer I had the opportunity of seeing on his visit to this country the Chairman of the Viticultural Council of Australia, with whom I had a most interesting talk. It is certainly the case that what he told me confirms very much what my hon Friend has said as to the social importance of this question in Australia, in view, in particular, of the fact that after the 1914–18 war the then Australian Government settled a considerable number of its ex-Service men on wine farms. That aspect of the matter was drawn to our attention as long ago as last summer.
The first problem which has to be faced when considering whether anything can be done on this question is the problem to which both my hon. Friends referred. It is the fact that under the General Agreement for Tariffs and Trade, if an adjustment of this kind is made in respect

of the Commonwealth product, similar adjustments have to be made on the foreign product. That is a consideration which involves, among other things, substantially increasing the cost of any change to the Exchequer and, as the right hon. Member for Colne Valley (Mr. Glenvil Hall) pointed out, also to some extent involves some questions of foreign currencies, although I do not want to labour that argument.
Therefore it is not possible, whatever one might wish, to approach this problem as a straight problem of Empire trade, although one could approach it from the point of view that if a concession of this kind is made to the Empire product, consequential adjustments have to be made to the products of Spain and Portugal.
Then there is the fact that the Empire wine problem is by no means a simple and straightforward one. My hon. Friend referred properly to the fall in imports into this country of Australian heavy wines. That picture is in contrast with the fact that the South African heavy wines, mainly sherry, have, in substance, maintained their pre-war level of exports to this country. That would seem to indicate that this problem is not bound up with the rate of duty but, at any rate to some extent, is bound up with changing social habits; that is to say, the consumption of the sherry type of wine is maintained, whereas the consumption of ports or what have under the Matthews Treaty to be described in certain cases as "port type wines," has tended to decline. Port appears to be on the wane if not on the wagon.
The difficulty is further added to when one considers that this is not merely a question of the Commonwealth and foreign product but, as my hon. Friend pointed out, there is a third and not unimportant factor to be considered, the home product or British wines. I ought perhaps in this context to disclose that I have a constituency interest in this aspect of the problem in that about half the British wine produced in this country is produced within the boundaries of the Royal Borough of Kingston-upon-Thames.
One has to consider, if one is making any adjustment to wine duties, not merely the question of an inevitable alteration


in the foreign product, but the question of what one should do about duty on British wines. My hon. Friend seeks to solve that problem by doing nothing at all about British wines inasmuch as he does not alter the Excise duty on them in this Clause. At the end of the process the rate on foreign heavy wines would be 25s. a gallon and the rate on Commonwealth heavy wines would be 15s. a gallon. The rate on British wines produced in this country would be 30s. 6d. That is to say, so far from there being a preference, there would be an actual discrimination against the home product.
I do not propose to enter into a learned disquisition on the relative gastronomic attractions of these different beverages, but I think hon. Members will agree that it would be a quite extraordinary arrangement to provide that the rate of duty upon a product produced in this country should be twice that produced in the Commonwealth and larger even than that produced abroad. That poses the very difficult question that if we made this adjustment in Commonwealth and foreign wine duty what adjustment should we make in the Excise duty on British wines? If we were to maintain the same margin of preference as they have at present over the Commonwealth product, that would involve reducing the rate to 5s.
That immediately raises the question of the rate of duty on British light wines, which is 10s. 6d., and if we were to reduce the duty on British heavy wines—as we would have to do in order to maintain the margin—to 5s., it would be quite ludicrous that the duty on light wines should be more than twice the amount. That is one of the complications with which one is faced when one begins to look at this body of duties and to consider possible changes in them.
I wish to say a word about the experiment which was made by the late Sir Stafford Cripps, to which reference has been made in, I believe, all the previous speeches in discussion of this new Clause. There is no doubt that it was a most enterprising change and one which was made with complete impartiality in the matter. But it was made in very particular circumstances—some which have been recalled by the right hon. Member for Colne Valley—at a moment when the

consumption of light wines in this country has suddenly and severely fallen.
There was, therefore, the possibility of a quick change if a large alteration of duty were made, Sir Stafford Cripps, rightly judging the timing of that operation, made the change in time to check that sudden fall and to recover it. I think that is a fair description of what happened, but it is a little misleading to suggest that the increased rates of duty on light wines which flowed from that decision indicated a net increase in revenue generally of anything like the same order.
As the right hon. Member for Colne Valley pointed out, it was with a view to some extent to switching the demand to light wines from other forms of what are described in the licensing laws as "intoxicating liquors" that this change was made. There is no doubt, although it is difficult to evaluate it precisely, that some revenue was lost, which would otherwise have been obtained, from duties on other forms of liquor. There was a switch and that is another example of how careful one has to be in fairness in making any of these adjustments.
This proposed new Clause proposes an adjustment in the case of sherry. If one made such a change, and a change of this order, one would have to recall that sherry competes with gin and an adjustment on sherry poses the question of whether one should reduce the duty on gin—

Mr. Godfrey Nicholson: How is gin concerned with sherry?

Mr. Boyd-Carpenter: I hope that one never allows one to come into the other, but they are beverages each competing for a market. They do compete as part and parcel of the same way of life under the same conditions. My hon. Friend will appreciate that there are occasions when one person has a glass of sherry and another person has a glass of one of the many admirable brands of gin provided by distillers in this country.
Similarly, of course, in the case of port one immediately has to consider brandy and one has to consider liqueurs. There is the further consideration that if we start adjusting these duties there is a very strong Empire interest in rum. The West Indies are very much concerned with the


rate of duty on rum. If one made an adjustment with regard to rum, I think it not improbable that hon. Members from Scotland would raise the question of the whisky duty.
That is an indication of the complications and, secondly, of the cost of changes of this sort. If one takes the new Clause as it stands the cost would be £6 million. That of itself is a very substantial figure to add to the concessions made in this Budget. My right hon. Friend is regretfully unable to sacrifice so much revenue in respect of this particular body of duties. But, as I have indicated, in practice if one considered making that adjustment one would be compelled to make further adjustments, which would add to the cost.
I think my hon. Friend the Member for Dumfries will agree that one would have to make adjustments in the case of British wines to avoid the ridiculous situation, which otherwise would arise, and one would be at least forced to give serious consideration to duties on a number of other beverages amounting to a substantial sum in millions of pounds over and above the £6 million. Therefore, while I have a great deal of sympathy with this proposal, particularly in its Imperial aspects, which, I agree with my hon. Friend, are perhaps its most compelling claims to attention, it is not possible for my right hon. Friend this year to take the step which is suggested.
I can tell the Committee that in our general review of taxation which preceded the Budget statement this subject was given very close consideration because there are here real issues of more than insular importance. For that very reason it was given the closest consideration. My hon. Friend will also appreciate that in the construction of the financial proposals for the year there is the inevitable question, if one decides that a certain amount of revenue can be dispensed with, in which direction it should in the national interest be dispensed with.
From that point of view my right hon. Friend came to the conclusion that, whatever it may be possible to do in the future, this year it was not possible to afford this amount of revenue even for this wholly admirable purpose. I regret to have to say to the Committee that it is not possible this year for my right

hon. Friend to do what my hon. Friend asks.
I can assure my hon. Friend, however —what I have said is tantamount to such an assurance—that my right hon. Friend is concerned about this matter, particularly in its Imperial aspects, and will watch the position very closely during the year to see that these duties do not do serious damage and from the practical point of view to which my hon. Friend properly referred, that duties carried to an excessive point are very shortsighted from the revenue point of view as a whole.
Both those points will be borne in mind during the coming year and my right hon. Friend, I hope, has already been able to indicate that this is a subject which is of concern to him and whose importance neither he nor Her Majesty's Government underrate.

Mr. Nicholson: I must apologise to the Committee and to my hon. Friend the Financial Secretary for not having been here for the whole of his speech. I must also announce my interest in this subject, as I am a wine merchant. I am sorry that my hon. Friend made the speech he did. I cannot help feeling that it showed that he did not treat the subject with seriousness—

Mr. Boyd-Carpenter: Mr. Boyd-Carpenter indicated dissent.

Mr. Nicholson: It is ridiculous to say that if one alters the duty on a particular strength of wine one must alter it on a group of spirits. In saying that my hon. Friend showed a frivolous approach.

Mr. Boyd-Carpenter: I said nothing of the sort. Had my hon. Friend paid as close attention as I hoped he had, he would have realised that all I said was that one would have to consider the position, in particular, of those duties which fell upon the rest of the competing products. I did not say they would have to be changed.

8.0 p.m.

Mr. Nicholson: Of course, but to suggest that the duty on gin might have to be altered because the duty on sherry was altered is to betray either an existing innocence of mind and total lack of knowledge of the strong drink trade or an improper lack of appreciation of the subject. I hope that next time the Treasury


approach this subject they will pay attention to the real issues which, to my mind, are not so much the Imperial issues. The export of Australian heavy wine to this country plays a relatively small part in the Australian wine industry.
The aspect to which I would draw the attention of the Committee is that of the port trade in Portugal. British merchants have been established in Portugal for well over 250 years, possibly 300 years and more. It is one of the most historic sides of British commerce. The net effect of the present high rate of duty is that trade is languishing. I know my hon. Friend has an historic sense and I appeal to him to think a little of the effect of these duties upon that group of British merchants.
I think I am right in saying that there is no other place in the world with a record of British commercial history comparable with that of Oporto. Its trade has been carried on in many cases by the same families for 250 years and more, and because of what I regard as the short sighted policy of the Treasury they are being hit very hard. Famous firms with famous names are suffering economic pressure and I think it would be a pity if, because the Treasury do not give adequate consideration to this subject, those firms should have to shut down, or their business should languish and ultimately become extinguished.

Mr. Glenvil Hall: I know that the hon. Member speaks with great experience in this matter. I hesitate to intervene in what he says, but would he not agree that in part, the reason for the fall in consumption and in trade with Portugal is not so much the heavy duty as the change of taste by people in this country who now drink other things, including gin, whisky, sherry and beverages of that kind.

Mr. Nicholson: It is difficult to separate the effects of changes of taste from those of economic factors, but I do not believe there is much in this suggested change of taste. People go round saying that they like dry wines. If the right hon. Member for Colne Valley (Mr. Glenvil Hall) took a lady for a drink and offered her some sherry, she would say she liked a dry sherry, but if he were to give her a dry sherry she would not like

it at all. On the other hand, if he gave her the sweetest sherry he could lay his hands on, she would be very pleased and would think she was drinking a dry sherry. That is my experience.
I think the change in social habits or taste is at the bottom economic. It is the high price of port which drives people away from port. I have always been very sceptical about this argument which is based on the assumption that there is a taste for drier things, for less sweet things, in this generation than there was before.
I do not wish to detain the Committee. All I wanted to do was to put in a fervent plea for the British community in Oporto and for the port trade in general. I hope my hon. Friend will not mind my telling him that he is off the beam when he thinks that any alteration in the duty on heavy wines must involve even the reconsideration of the spirits duty. That is far from the case. I hope he will redirect his attention to this problem and will recognise that in the attitude which he is adopting he is dealing, what I trust will not be a fatal blow, but what is a severe blow at some of the most honourable merchants in British trade and the most historic British trading colony on the Continent of Europe.

Mr. Boyd-Carpenter: I hope my hon. Friend who I know is a considerable expert in this subject, will understand me if I say that to some extent I resent his suggestion that I was taking the subject lightly. It is, in point of fact, a subject to which I have given great attention for at least the last year. I do not know whether he was in the Committee during that part of my speech in which I referred to my discussion with a distinguished Australian concerned in this matter. If he were here he would realise that I have had this difficult subject very much in the forefront of my mind for nearly a year. I hope he will let me say, therefore, that it is quite unfair to suggest —whether he likes our conclusions is another matter—that I or Her Majesty's Government have been other than serious in our treatment of this case. I quite agree with him that it deserves serious attention.
I was interested in what he said about the port trade in Portugal, which is a very ancient British industry—a partially


British industry—as, indeed, is the sherry industry in Spain, in which a considerable number of British families have taken part for many generations. No one would wish to deal these ancient industries a severe blow, but it is a fact, which none of us can escape, that at a time when a heavy burden of expenditure, both on defence and on social services, requires high taxation, it is necessary to impose high levels of taxation on a very wide variety of products, many of them of most admirable quality. We have already had considerable discussion on the subject in our debates on the Purchase Tax. It does not indicate any disregard for the well-being and merits of a particular industry to have nonetheless regretfully to say that in present circumstances a high rate of taxation upon its products is inevitable.
Like my hon. Friend I do not wish to detain the Committee, but I have sufficient respect for him, I hope he will allow me to say, to desire to clear in his mind at any rate—I do not think it was in anyone else's—the suggestion that this subject has been treated other than with the seriousness which it demands. It is an important matter both by way of an industry and also by way of revenue.
I differ from my hon. Friend on the question of the repercussions upon other duties. Had he given the consideration to the problem which I have given in the last year, I think he would realise that there is more in what I said than he suggests, but on that subject we can agree to differ. Where I hate to differ from him is in the suggestion that we do not regard this subject with proper seriousness.

Mr. Nicholson: I entirely accept what my hon. Friend says, and I am sorry if I wounded him by turning on him in that way, but I was a little surprised that he should fortify what are cogent arguments with what I thought were weak arguments. I was also told, I must admit to the Committee, and it shocked me to hear it, that my hon. Friend was not aware of how many gallons there were in a pipe of port.

Mr. Houghton: On a point of order. Can these reconciliations take place outside the Committee?

Mr. N. Macpherson: Before I withdraw the Motion, may I make three short

comments? First, I know my hon. Friend realises that my hon. Friends and I were not unaware of the complications which would follow the acceptance of this new Clause We felt that the case in itself was sufficiently strong to warrant putting it forward and expecting the Government to make such necessary adjustments as they thought fit. Secondly, while my hon. Friend said the immediate cost would be £6 million, I think he will agree that that would only be the case if the consumption remained as it is at present. Our case is that the consumption would increase very considerably and that he would recoup most of what he is giving away. I would not say the same necessarily regarding British wines and in consequential adjustments.
Reference has been made to Australia and Portugal. There are social consequences in South Africa which are serious as well. My hon. Friend has mentioned what might be termed the branded sherry trade. South Africa was a large exporter of the cheaper forms of wine as well, and they are suffering seriously. Unless the vineyards can continue to supply the cheaper as well as the more expensive wines it will be very difficult for them to carry on.
I hope my hon. Friend will bear these considerations in mind and remember that it was on the basis of the encouragement given pre-war that the South African vineyards were built up. I disagree with my hon. Friend the Member for Farnham (Mr. Nicholson). I think the Financial Secretary has dealt with this matter sympathetically. If we cannot have a concession this year, we look forward to very sympathetic and more fruitful consideration next year. I beg to ask leave to withdraw the Motion.

Motion and Clause, by leave, withdrawn.

New Clause.—(ALLOWANCE UNDER SCHEDULE A FOR MAINTENANCE, REPAIRS, INSURANCE AND MANAGEMENT.)

At the end of section one hundred and one of the Income Tax Act, 1952, the following subsection shall be inserted: —
(8) Where the owner of any land or house

(a) would under this section have been entitled to repayment of the amount of income tax upon any sum if the assessments on the land or house, as reduced for


collection, had been sufficient for the purpose; but
(b) is unable under this section to obtain repayment of that amount because the assessments on the land or house are not sufficient for the purpose,
that sum shall be treated as if it were the amount of an allowance falling to be made under this Act by way of discharge or repayment of tax, available primarily against unearned income."—[Mr. Oliver.]

Brought up, and read the First time.

Mr. G. H. Oliver: I beg to move, "That the Clause be read a Second time."
This Clause deals with allowances under Schedule A for repairs to property. During the past few years we have discussed not only the need for repairs to many of the houses in the country, but particularly those occupied by members of the working class, many of which are dilapidated and in a state of decay.
I realise that, in the main, it is due to the large volume of houses falling within the purview of the Rent Restrictions Acts. For that type of property, while the rent is restricted expenditure in respect of repairs has increased enormously. To some extent the provisions of this Clause would give relief to the landlord if he spends money on repairs in certain circumstances where he is not at present helped by the Revenue, but, on the contrary, is penalised.
8.15 p.m.
I recognise at once that as the law stands provision is made for a standard allowance in respect of repairs, but I am sure that few hon. Members would attempt to justify the scale in operation today. Where the annual value of a property does not exceed £40 the deduction which may be made is one-fourth part of that annual value. The owner of a property of that value would be entitled to spend £10, on which he would get Income Tax rebate.
On a property exceeding £40, but not exceeding £100, he gets the princely sum of one-fifth of the annual value. If the value exceeds £100 he may claim a deduction of £20 plus one-sixth of the amount by which the annual value exceeds £100. These scales have been in operation for many years. I can vouch for 25 years and the period may well go beyond even that. If they were fair

allowances 25 years ago they must be totally inadequate to meet the cost of repairs today.
While we recognise that complete inadequacy, which is shown by the fact of the state of property in this country, we must recognise, also, that the law at present permits, in addition to the allowances to which I have referred, relief to a property owner where he can show that the cost of maintenance and repair of the property over the five preceding years has exceeded the statutory allowance for repair. But that sum must not exceed the net annual value. Tax would have to be paid on any money spent above that figure.
As an illustration, if we consider a property with a net annual value of £30 and the landlord, over the five proceeding years, spends £40 in repairs, he can only re-claim relief on £30. He cannot put the other £10 against some other income, or transfer it to another year. That is definitely penalising anyone wishing to keep his property in a decent state of repair. This Clause seeks to get rid of that penalty. In other words, it does not penalise the landlord; it induces him, if necessary, to spend the money which he deems necessary to keep his property in a decent state of repair.
In 1945, when my right hon. Friend the Member for Bishop Auckland (Mr. Dal-ton) was the Chancellor of the Exchequer, the principle which I am asking the Committee to accept was extended to agricultural land and properties, and I have not the slightest doubt that when that concession was made there was great justification to induce property owners to bring their properties up to date and make them decent. I have no doubt that that has had a very desirable effect.
If that is so, however, in respect of agricultural properties, why is it not applicable to dwelling-houses so as to induce people to spend money to make dwelling-houses habitable and to keep them in the best possible state of repair? It if were possible, in cases where excesses have been spent, to transfer the excess to other incomes or to carry it over to another year, it would be a great concession and would do a little—I do not suggest it would do a lot—to help landlords to get their property back into the condition in which it ought to be.
This proposed concession, in the main, would go to the small man. It does not apply to the large property company. The large property owner, as a rule, is a property owning company which is not affected by these proposals. A large estate, of course, is treated as a unit and, therefore, the concession would not apply to that. This matter deals mainly with residential property. I see that the Solicitor-General is almost straining at the leash to get to the Box to tell us that he is prepared to accept this new Clause, and I hope that we shall have a favourable reply from him.

Mr. Raymond Gower: I think hon. Members on both sides of the Committee will agree that the idea behind this Clause is a very good one. Even if it cannot be accepted tonight, it should certainly be very carefully considered.
One of the main problems today is the decay of our older houses, and indeed of our not-so-old houses, as the hon. and learned Member for Ilkeston (Mr. Oliver) has pointed out, due largely to the increased cost of repairs and to the fact that the resources out of which those repairs have to be paid have not increased similarly. The hon. and learned Member for Ilkeston has clearly shown us how inadequate are those resources and the present allowances.
Although the proposed new Clause may not be perfect in form, I imagine that the principle of the new Clause would be of great assistance in the case of very many of the properties concerned. It will not help those whose incomes are very small. The person with perhaps a couple of houses—and we encounter many such people in our constituencies—would not benefit, but it would benefit the vast majority—

Mr. Oliver: If they had another income they would have the surplus transferred.

Mr. Gower: When I say that it would not benefit the person with a couple of houses, I can think at this moment of a widow in my own constituency who has only two or three cottage properties, and derives a very slender income indeed from them, and in many ways she is worse off than a person who has no such resources but who can receive National Assistance. Those persons would not benefit by this

new Clause, but nevertheless it would be a first step in the right direction. It would benefit the vast majority of properties concerned.
I disagree with the hon. and learned Member for Ilkeston in one respect. This Clause would also benefit in some degree the property companies to which he referred. As he properly pointed out, the principle behind his Amendment does not penalise the landlord and, what is more, it imposes no new burden on the tenant. That, I imagine, is an additional reason for supporting the principle behind this Clause. I do not know what the principle of this Clause would cost the Treasury, but I submit that whatever the cost, it would be money well invested, because anything we can do to remove or repair that decay which is occuring in our older property is most desirable.
In brief, I imagine that most of us support the idea behind this new Clause. We should like to know from the Minister the estimated cost of putting it into effect. We should like to know whether there is any technical objection to its present form. Even if he is not able to accept this new Clause tonight, I sincerely hope that when we reach the Report stage, he will have given it careful and sympathetic consideration, because I believe that it will be a first and most valuable step towards dealing with the question of decaying house property.

Mr. Gordon Walker: I certainly hope that the Solicitor-General will be able to agree to this new Clause because it is really demanded by the simple principle of good taxation which, I believe, goes through the entire structure of our system of taxation, with this one exception of the house owner— namely the principle that Income Tax should be paid on actual income after set-off for loss or for proper expenses.
I believe—I cannot think of any other exception—that everybody else pays Income Tax on his actual income after such allowances have been made, but the owner occupier of a house cannot set off proper expenditure against his income before he pays his tax. His isolation in this respect is made all the more striking because, in 1945, agricultural land and buildings were exempted; before that, the owner of such buildings was in the same position as the owner-occupier is


in today. In 1945 he was allowed to set off expenses against other income and carry it over to the next year.
Therefore, the discrimination—because that is what it means—against the house-owner is very marked, and I cannot see how, on any principle of good taxation, this new Clause can be resisted. The hon. and learned Gentleman is very ingenious in thinking out principles, but I think he would be hard put to it to find a proper principle to apply to the tax structure which would justify the rejection of this new Clause. It is highly desirable that we should do what we can to encourage the owners to put money back into house property.
8.30 p.m.
My final point is that this concession —it is not really a concession at all but the righting of an injustice—would be completely safeguarded against fraud. First of all, the applicant has to average the amount out over five years, so that one could not by large expenditure in one year obtain an improper exemption, and, more particularly, one can only get these allowances against receipts for actual expenditure. It is absolutely foolproof, and I hope that the Government can tell us that they will accept both the principle and the new Clause.

The Solicitor-General (Sir Reginald Manningham-Buller): Perhaps I might answer the hon. and learned Member for Ilkeston (Mr. Oliver), who moved the new Clause, at this stage, because we have a great deal of work to do, and I feel sure that, if we can deal shortly with the points at issue, it will meet everyone's desire.
A great deal of what has been said will command the universal support of hon. Members as to the desirability, and indeed the necessity, of securing repairs to houses which so badly need them, but we are not really discussing that matter this evening. We are discussing this new Clause, and, as far as I am aware, it always has been the practice to limit the amount which can be claimed for maintenance to the amount of the assessment under Schedule A; that is to say, I am not aware of any time in the long history of our Income Tax laws when one could claim as maintenance more than the amount of the Schedule A assessment.

That arrangement worked all right when the Schedule A assessment was up-to-date, and kept more or less in line with current values.
Of course, this problem, to which the hon. and learned Gentleman has drawn attention, arises at the present moment largely because there has been no revaluation for Schedule A purposes since 1936, and the cost of repairs has appreciated considerably since that time. The answer to the problem which the hon. and learned Gentleman has put forward —and it may be an unpleasant answer— is re-valuation for Schedule A purposes, because that would allow larger claims for maintenance, but the hon. and learned Gentleman will realise that, if there was a revaluation now, and the person paying Schedule A at the present time is not paying what he would have to pay should there be a re-assessment, he gets an advantage in that way at the present moment.

Mr. F. J. Bellenger: Would the hon. and learned Gentleman allow me? He seeks to show that the reason why my hon. and learned Friend's Clause cannot be accepted is because Schedule A assessments are too low, because there has been no re-valuation. Surely, the learned Solicitor-General is aware that the Schedule A assessment is based on the rental income, and that, in addition to Schedule A at present, there can be an additional assessment under Schedule D for excess rent and that any excess repairs could be set off against it?

The Solicitor-General: The right hon. Gentleman is a little wrong in one particular. If one is assessed under Schedule A, according to a case which was decided in the House of Lords, one cannot be assessed under Schedule D in respect of the same property. [HON. MEMBERS: "No."] It was a case in the House of Lords. I have had occasion to look at it quite recently. It is Salisbury House Estates v. Fry, where the Revenue sought to do that very thing, and the House of Lords said that they could not No doubt the right hon. and learned Member for Neepsend (Sir F. Soskice) is familiar with that case.

Sir Frank Soskice: I know that case very well, but I certainly never regarded it as deciding what the Solicitor-General has just said.


Surely you can have a Schedule A assessment on you and an excess rents assessment put on you in addition to the Schedule A. I never thought the Salisbury House case decided anything to the contrary.

The Solicitor-General: If the right hon. and learned Gentleman will look at it again he will see that there was an attempt by the Revenue to get, under Schedule D, an excess which the company was getting over the valuation under Schedule A. That attempt was completely unsuccessful. However that may be, do not let us prolong the matter.

Sir F. Soskice: I am sorry to interrupt the hon. and learned Gentleman again, but I am certain that we must be accurate about this. It so happens that I looked up the Salisbury House case two months ago.

The Solicitor-General: I looked it up yesterday.

Sir F. Soskice: I must look at it again, but my recollection is quite clear. It was a case where there were ordinary trading profits, not excess rents, and it was held that the company could not be assessed under Schedule A, and also under Schedule D to trading profits. That is not an authority for a moment that one cannot be assessed under Schedule A and in addition be assessed in respect of excess rents.

The Solicitor-General: What they were seeking to do was to get an assessment under Schedule D, having assessed under Schedule A, and also to deduct under Schedule D the amount of the Schedule A assessment. Whether the right hon. and learned Gentleman calls it "trading profits" or not, they were in effect profits from rents of premises. I do not think that we can usefully prolong controversy about that case. All I can say is that I had occasion to look at it yesterday.

Mr. Houghton: Mr. Houghton rose—

The Solicitor-General: May I carry on with my argument? I will give way to the hon. Gentleman in a moment. The right hon. Member for Bassetlaw (Mr. Bellenger) seems to assume from what I have said that that was the reason why we were not able to accept the proposed new Clause. I was merely seeking to

indicate the reason why the difficulty has arisen. It is because of the ceiling which has been fixed for many years. The Schedule A assessment has existed for a long time as the ceiling to the amount which can be claimed for maintenance. That is generally recognised as being the case.
The proposal put forward by the hon. and learned Gentleman opposite would affect all kinds of property owner, including property companies who hold residential property. They have to pay Schedule A tax, and they might be able to set off their maintenance claim against other taxes on the income of that property company. It would be hard to limit the operation to one particular category of property owner.
Then I am asked what would be the cost. I cannot give an answer to that question, as it would depend entirely on how much money was spent in any particular year. It would be hard to estimate that, but there is no doubt that the cost would be very substantial indeed. Hon. Gentlemen may say that the idea is a very good one because it overcomes a difficulty without penalising the landlord or throwing any new burden on the tenant, but it would throw an extra burden on the general body of taxpayers. The problem with regard to the maintenance allowance is, and indeed in relation to Schedule A also is, a complicated and difficult one.
I quite agree that a problem exists. It is a matter which is under the consideration of the Royal Commission and in those circumstances I suggest to the Committee that it would be wisest to await the Royal Commission's Report before making what would be a radical change in the structure of the Income Tax Acts which has existed up to now. While I hope that I have made it clear that I am not in the least unsympathetic towards the object behind this Clause, it is for that reason that I ask the hon. and learned Member for Ilkeston whether, having ventilated the subject very fairly, he would not now be prepared to withdraw this new Clause.

Mr. Gaitskell: When the Solicitor-General rose at such an early stage in the discussion on this new Clause I had hoped that it meant he would accept it, or at least indicate that he agreed with


the principle and that the Government would do something about it. We know that the Government are anxious to get on with the Bill and, of course, if they have a concession to make it is a very sound rule to make it early in the discussion, because that saves time. Unfortunately, we find that that is by no means the case. The Solicitor-General has given us a very dusty answer indeed, the usual dusty answer which simply refers everything to the Royal Commission.
I do not want to take up time in going over the arguments again in favour of this Clause. There are some aspects of the Clause with which I am not entirely in agreement. I do not much like the last four words in it. Admittedly, they make no difference to what the effect in law would be, because they simply say,
… primarily against unearned income.
But they give a rather misleading impression. I realise that no doubt my hon. Friends had in mind that since they were asking for an off-setting of expenditure under Schedule A to some other income it was natural to choose unearned income for that purpose. All the same, if I may say so to them with respect, I should much prefer not to have those words in the Clause.
In passing, I must say that I would not be very much in favour of a Clause which was to assist people who really did not need assistance in this way. That is one point which I thought that the Solicitor-General made. There may be some answer to it, and it may be a matter merely of the drafting of the Clause. But he suggested that it would benefit a wide variety of persons, companies and corporations, and the implication of his argument was that that was not really necessary. That is a really serious point, but it does not in the least dispose of the matter.
If the Solicitor-General had said, "The Government cannot accept this Clause, because it goes too far in providing assistance and permitting off-setting in too many cases, but they recognise that there are a number of small people who need assistance and they will bring in a Clause themselves to deal with the matter," then, for my part—I do not know about my hon. Friends—I would

have been fairly well satisfied with the answer. But we have not had that answer at all.
As my hon. and learned Friend the Member for Ilkeston (Mr. Oliver) made perfectly plain, the new Clause, as it stands, is intended principally to benefit small people. If it goes wider than that then perhaps the drafting could be altered. I admit that inevitably the Clause cannot benefit those who have no other income. That is only one illustration of the general point that if one is making a concession in taxation it can only be made to those who pay taxes. We cannot discuss the rights and wrongs of making these sorts of concessions here. In this Finance Bill we are restricted to one field alone. We may regret that we cannot help the widow who has two houses and nothing else, but there it is. It is a pity. But that is no reason for not doing something for those who can be assisted.
8.45 p.m.
I was particularly surprised—indeed, alarmed—by what the Solicitor-General had to say about the reasons for the present situation. He seemed to be warning us that the only way out of the situation was for the Schedule A assessments to go up three times above their present level. Is that really the Government's intention? Is that the way he sees out of this difficulty? It is a most astonishing statement. I understood that even in the new assessments which are being considered in the Bill which is now before the Standing Committee the principle is still to be the rental in 1939. There can surely be no question of any solution to the problem being found by an increase in Schedule A assessments. I do not think it would be a popular suggestion if that really were the Government's intention.
In all the circumstances, although I do not agree with everything in this Clause, my hon. Friends are entitled to press this matter a great deal further. There is no doubt that this is a very serious grievance. There is no particular reason why the ceiling should not be removed in the case of agricultural buildings and maintained on residential dwellings. We have not been told why there should be this discrimination. In quite a number of cases it causes serious hardship and, for


my part, I very much hope that my hon. Friends will press the Government further and get a much clearer and more satisfactory statement from them before we leave this Clause.

Mr. John Hay: I want to address one plea to the Solicitor-General on this matter. There is a feeling in all quarters of the Committee that there is something behind this Clause which indicates a problem needing attention but, as the right hon. Member for Leeds, South (Mr. Gaitskell) has made clear, there are certain defects in the new Clause as it is drafted.
The purpose behind it is a good one, which was typified by the right hon. Member for Smethwick (Mr. Gordon Walker) when he said that all this new Clause seeks to do is to ensure that if one has a right to a rebate of tax one should be able to apply that right to some other income which would otherwise be taxed at the full rate. From the point of view of pure equity that would be the fair thing to do but, as the right hon. Member for Leeds, South said, the Clause as drafted would take in far too large a group of people, some of whom might not be deserving of this particular concession.
I think the Solicitor-General would agree, however, that it is particularly the small people, about whom several hon. Members have already spoken, who are in need of some assistance. I was delighted to hear the right hon. Member for Leeds, South say that the whole point about taxation is that one cannot give a concession in tax to those who do not pay tax. I am sure the House would have welcomed that remark from the right hon. Gentleman on the Second Reading of this Bill or during the Budget debate which preceded it, when he adopted an entirely different attitude.

Mr. Gaitskell: The hon. Gentleman knows perfectly well that we were then entitled to discuss expenditure as well as taxation. My point then was that it was within the power of the Government to help people below the tax level at that stage, but it is not now possible, at any rate with regard to this Clause.

Mr. Hay: I appreciate the correction. There is a problem here. It would be a pity if the Committee were forced to a

Division on this subject. I urge my hon. and learned Friend to say that between now and the next stage of the Bill this matter will be looked at once more. It would be unfortunate if the Committee had to divide on a subject of this kind when there is undoubtedly a feeling that something ought to be done, but I would also ask the hon. and learned Member for Ilkeston (Mr. Oliver) whether, if my hon. and learned Friend were prepared to undertake to look at this matter again, the hon. and learned Member would be prepared to withdraw this Clause, so that we did not have to have a rather unfortunate Division on a subject of this sort. I support the idea behind the Clause; there may be difficulties about it, but it is a good principle and, if possible, we should include it in legislation.

Mr. A. J. Irvine: I very much hope that the Solicitor-General will take note of the formidable armament of argument which has been brought to bear from both sides of the Committee. What is unsatisfactory at this stage is that the Solicitor-General has based his reply upon the proposition that the cure for this admitted difficulty is a revaluation of the Schedule A assessment. At any rate, that is the impression that he gave the Committee.

The Solicitor-General: I am sorry if that was the impression that I gave the Committee. It was certainly not what I said or what I wished to imply. I merely sought to indicate how the problem might be said to have risen. I pointed out that the Schedule A assessment was last made in 1936. I then went on to say that if the values had risen so that the Schedule A assessment, if now made, increased, the ceiling would be higher for the maintenance claim, and the problem might not arise.
I said nothing—I am certain that HANSARD will bear this out—to indicate that it was my view that the values would always be put up for Schedule A. I do not know what would be the position. I was merely seeking to indicate how the problem now arose and why the problem was not present in 1936. I am sorry if I failed to make myself clear about that. The position which I took up was to say that, while we are not unsympathetic to the proposal, this is a matter which is


being considered by the Royal Commission and that, before altering the position, it would be wiser to await their Report.

Mr. Irvine: I am glad to have from the Solicitor-General that explanation of what he said. No doubt, through a misunderstanding, he gave the impression to some hon. Members that he would regard revaluation of Schedule A assessments as a possible solution. However, I gladly accept his explanation.
It is clear that the consequence of the revaluation of Schedule A assessments upon the taxation injustice with which we are concerned in the proposed Clause might be to reduce the number of persons affected by it, but it would emphasise even more than it is emphasised now the circumstance that it would be the smallest owner-occupier who would be victimised by the restrictions. On both sides of the Committee it is recognised that there is an injustice, one of comparatively small content but of considerable importance particularly affecting small persons. It seems to be the kind of matter which, pat-excellence, could well, and to the satisfaction of all, be corrected during the Committee stage of the Finance Bill.
Our complaint is that the small owner-occupier is the victim of the injustice which exists under the present law. Our proposition is that the Clause deals with the anomaly which bears with particular harshness on such an owner-occupier. He receives his Schedule A assessment. Then he gets his repairs allowance. As my hon. and learned Friend the Member for Ilkeston (Mr. Oliver) said, it is a rather small allowance, but, nevertheless, he gets it. That leaves him with a net assessment. He finds that the relief to which he is entitled—this is the point of which I want the Committee to be seized—based upon the actual expenditure incurred over a period of five years is limited to that net assessment.
The owner-occupier also finds that in that respect he is at a disadvantage compared with the owner of agricultural land and agricultural buildings who is getting relief in respect of the whole of his expenditure. What can justify that distinction? What, in principle or in reason, can be brought forward to justify the advantage which the owner of land or agricultural buildings possesses in that respect?
He finds, in addition, in this respect, contrary to the general principle which is applied in the law of Income Tax, that he cannot set off his loss against other income. So far as I know that principle is one of almost universal application. It is one to which acknowledgment is given even in this Finance Bill which we are considering now in Committee in Clause 13.
These there are two respects in which he finds himself treated, in my submission to the Committee, most unfairly and differentially. The matter which concerns me most, however, is the extent to which the existing law, which we are trying to correct by this new Clause, penalises the smallest owner-occupier. When the restriction is analysed, unless I am mistaken—and I take responsibility for my own figures, because I have worked them out as well as I can—it is the smallest class of owner-occupier who is worst hit.
It is true, of course, that the scale of repair allowance is graded to the advantage of the smaller owner-occupier. That is only fair. He gets one-quarter, on the first £40, one-fifth between £40 and £100 and a rather less proportion if it is higher, and, in consideration of this, the occupier of the lower assessed house, as is right and fair, has an advantage over the owner-occupier of the more highly-rated house. But the effect of this restriction, which the Clause tries to amend, is, as I see it, in exactly the opposite direction, because it seems to me to operate, not like the original proportions to which I have referred, but directly and explicitly against the small owner-occupier.
I would ask the Committee to bear with me while I put before them by way of satisfying them that what I have alleged is true, two cases which, in my submission, are very comparable cases which the Income Tax law ought to treat alike, and which, in fact, it does not treat alike. Let us take, first of all, the case of an owner of a house assessed at £80, spending on an average £60 a year over five years in repairs. Let us put it at £80 gross assessment.
9.0 p.m.
Take the second case of a householder whose home is assessed at £40 gross, spending on the average £40 a year over five years on repairs. I suggest that these are comparable cases which the law ought


to treat alike, but, applying the existing law, it works out in this way, if I am not mistaken. The owner of the £80 house gets £16 repairs allowance, a fifth, leaving a net assessment of £64. That means he gets relief on the whole of the £60 that he spends in each of the five years.
Take, now, what I have suggested is the strictly comparable case of the £40 house. The owner gets a £10 repairs allowance, and that leaves a net assessment of £30. So he is not covered for the whole of the £40 which he has expended. It seems to me, therefore, that if one applies the formulae now in effect it has the consequence of bearing much more harshly than appears at first sight on the small owner-occupier, and it is because that consideration is present that I would ask the Government to think again about this, because here in small compass or comparatively small compass is a manifest injustice, and an opportunity like this to correct it is invaluable.
I had the honour earlier in the Committee stage to move an Amendment which was accepted by the Government. I did not have the opportunity then to express my gratitude to the Government for acceptance of the Amendment, and I make good the omission now. Here is another rather similar injustice which one would look to the Government once again with magnanimity to correct.

Mr. Houghton: I shall not detain the Committee more than a moment or two, but really the learned Solicitor-General cannot get away with his complete ignorance of the excess rents provision of the Income Tax Act, 1952. He said that in a recent case in another place it had been found impossible in law to levy both Schedule A and Schedule D in respect of the same rent from the same property. All I can say is that there are literally thousands upon thousands of excess rent assessments levied under Case 6, Schedule D, under Sections 175 and 176 of the Income Tax Act, 1952, which are, apparently, unlawful, and I hope that the Solicitor-General will announce to all those who are paying Income Tax in excess rent assessments that they are paying unlawfully, that they need not pay, and can now ask for their money back.
My right hon. Friend the Member for Bassetlaw (Mr. Bellenger) pointed out

what we all knew on this side of the Committee, but apparently the learned Solicitor-General was unaware of the provisions of the 1952 Act, which, I believe, began in the Finance Act, 1942, and were put there to remedy what otherwise would have been a weakness of the Schedule A provisions of the Act.
As the Solicitor-General has pointed out, there has been no re-assessment, no quinquennial revaluation, for Schedule A since before the war, but it was realised that during the war many rents might rise, notwithstanding the provisions of the Rents Restriction Acts, and since it was not possible to revise the Schedule A assessments this supplementary provision to levy a supplementary assessment under Case 6, Schedule D, was introduced into the Finance Act, 1942—I believe it was— in order that rents received should not go untaxed When the Solicitor-General suggests that a revaluation now would to some extent correct this anomaly he loses sight of the fact that Income Tax, so far as income from property is concerned, is charged on the rent received. If that is not fully accounted for by a Schedule A assessment, there is power to raise this additional assessment to which I have referred.
It is true that the owner-occupier has not been subject to a revaluation of the assessment on his property, but there are many reasons for leaving the owner-occupier at present in the relatively favourable position that he holds, having regard to the fact that if Income Tax makes sense at all it should be a tax on income and not a tax on the amenity value of the occupation of an unfurnished house. There is no justification for taxing the amenity value of an unfurnished house any more than for taxing the amenity value of pictures or furniture. But that is a much wider question on the subject of taxation under Schedule A, and I will not pursue it. The learned Solicitor-General failed, I thought inexcusably, to answer the question which was put to him from this side of the Committee.
The other point that he made was that as far as he knew it had always been so that the excess relief was limited to the amount of the Schedule A assessment. I suppose the Front Bench of the Government side of the Committee has


become as infected as the Civil Service itself with the vice of precedent, and is subservient to tradition. If the hon. Gentleman wants to know, there was no provision in the 1842 Income Tax Act for any repairs to be allowed against the assessment of property at all, but that did not prevent the Government of the day in 1894 introducing for the first time a statutory repairs allowance against Schedule A assessments.
This provision for an excess repairs allowance was one of the first reforms of the great Liberal Government of 1906. It is true that at that time they limited the annual value of the property to which this concession could apply was to property of £8 per annum. I am glad to say it was increased by the same Liberal Government in 1914 to £12. Liberality had swept through the Government. In 1919 under the Coalition Government the Finance Act then extended the limit for this excess provision to houses of an annual value of £70 in London, £60 in Scotland and £52 elsewhere, which shows that sometimes Coalition Governments are more liberal than Liberal Governments, but only sometimes.
Finally, I want to put this to the Solicitor-General. If the taxpayer goes to the bank to borrow money to pay for these repairs, and he pays bank interest he can then set off the amount of bank interest against any income he is getting for the purpose of Income Tax. He is limited to the amount he can claim under Schedule A assessment to the amount of the net Schedule A assessment. If he is in business and he makes a loss he can carry forward that loss against future profits indefinitely. In last year's Finance Act the Millard Tucker proposals lifted the limit on the carry forward of losses, so that these losses can be carried forward indefinitely.
They can also set off business losses against other income, and here I may say in parenthesis that the reason why the new Clause contains the provision for the excess to be set off against unearned income is primarily that Schedule A income from property is unearned income. It seems to be right that any excess should be set off against any unearned income primarily, and against income if there is not enough unearned income to

satisfy the demand. In those circumstances we are entitled to ask the Solicitor-General to make a different kind of speech or it is obvious that we must divide on this new Clause.
In conclusion, may I say that I am glad to see the Financial Secretary has come back? We all know the reasons for his regrettable absence. He has been making up a tiff with his hon. Friend the Member for Farnham (Mr. Nicholson). We had the painful pleasure of watching this personal quarrel, which nearly became the first sign of a split in the Tory Party, before they went outside to finish their reconciliation. Had the hon. Gentleman remained, he would have given us a voluble, a clear and a sympathetic reply on this new Clause but, as it is, he left it in the hands of the hon. and learned Solicitor-General, who never makes his appearance on the Front Bench without putting his foot in it, and whose replies on anything with which I have to do bode ill for the fate of the proposal made. At least we still have the right to divide the Committee and that, I suggest, we do.

Sir F. Soskice: I rose hoping that I would see a movement in the prostrate body of the Solicitor-General. I am not surprised that he was somewhat prostrate, spiritually at any rate, after the speeches made from this side of the Committee on this modest proposal.
As my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) has pointed out, there are in the opinion of a number of us on this side of the Committee matters to criticise in the form of the new Clause on the Order Paper, particularly in the words with which it ends. Surely, however, the Solicitor-General, having listened to the speeches made by my hon. Friends must concede, if he was not aware of it before, that it is now apparent that a real grievance has been brought to light? I think all hon. Members of the Committee will be grateful to my hon. and learned Friend the Member for Ilkeston (Mr. Oliver) for having called attention to it.
How the grievance should be dealt with is a matter on which opinions can differ, and it is obviously one which perhaps will give rise to difficulty. But what can and must be entirely beyond controversy is that a proposal such as has been made, evoking as it did so much


sympathetic response on all sides of the Committee, ought not to have met the blunt and unsympathetic response which it met with from the Solicitor-General. The hon. and learned Gentleman kindly gave his views about the interaction of Schedule A and the excess rent provisions. If we felt that we had advantage from the exposition he gave us, perhaps we should have been more friendly towards him, but we were not able to agree with even those views that he expressed. Therefore we are less gratified by the rest of his address, which took the form of saying that when the Schedule A assessments are raised considerably above what they are at present, this grievance will evaporate.
Though I for a long time occupied the position of the hon. and learned Gentleman and felt acutely, as no doubt he does now, the difficulty which that position involves; though I often did with my foot what he has been charged with doing with his foot this evening, I think he has transgressed rather seriously in the direction of trying to brush aside the serious and sincere case put forward. This is an Amendment which, if it were accepted, would bring relief to a large number of persons of limited means who at present have no means of relief. As has been pointed out by my hon. Friend the Member for Sowerby (Mr. Houghton), the position is extremely anomalous. If there is bank interest to pay, that is a general charge upon income available against any source of income which one may have.
9.15 p.m.
Equally, the provisions in regard to the treatment of losses made in enterprises taxable under Schedule D are far more generous than the provisions in respect of maintenance expenses in so far as relief against Schedule A is concerned. We feel that at least the case should be seriously considered for reviewing the strict limitations of these Schedule A relief provisions.
If we had had any indication from the Solicitor-General that he was prepared to take seriously the case advanced from this side of the Committee, I am sure my hon. Friends would have felt more content than at present, but they feel—and I am not surprised—somewhat indignant at the tone and manner of the response of the Solicitor-General. I feel certain they would desire to take the matter further

and press it to a Division. I advise them to do so and when we go into the Division Lobby, as I hope we shall, I hope we shall have with us a number of the supporters of the hon. and learned Gentleman who feel as we do the justice of our case and the inadequacy of the reply.

The Solicitor-General: I was about to rise when I saw the right hon. and learned Member for Neepsend (Sir F. Soskice) rising to his feet and, naturally, I awaited his observations. I am surprised that he commented on my failure to move faster. I was criticised for moving too fast earlier in the debate in seeking to give the answer to the points very clearly put by the hon. and learned Member for Ilkeston (Mr. Oliver) in the hope that it might save time.
I am sorry that the right hon. and learned Member thought my observations either blunt or unsympathetic. I tried to express them shortly, and I said in the course of them that I was not at all unsympathetic to the points raised. I indicated—and this was perhaps where the misunderstanding arose—where it might be thought that this difficulty was particularly prominent at present. But I certainly did not suggest, or wish it to be understood, that the solution would be a wholesale increase in Schedule A assessments. What I did desire to emphasise at this stage was that this is a matter which bristles with difficulties. It is a matter, as I said then, which is being considered by the Royal Commission. It was because of the desirability of awaiting the Report of that Royal Commission that I suggested to the Committee that it might be wise to see that Report before making a change.

Mr. Mitchison: Will the hon. and learned Gentleman allow me?

The Solicitor-General: May I conclude the observation? I have been attacked and I am trying to reply quite shortly. I do not in the least want it to appear that I am unsympathetic, or that we are unsympathetic; we certainly are not. I said that we recognised the real problem which exists here and in the course of my observations I fell into one error, which I correct now. I think I am right in the view I took of that particular authority. I have recently looked at the matter, but I forgot the


provision in the Finance Act of 1940. The hon. Member for Sowerby (Mr. Houghton) was quite right, but I did not seek to interrupt his very interesting historical speech with humorous aspects in it. I hope I have made it clear that, although my reply was too short, it certainly was not meant to be unsympathetic and the reason I advanced for not accepting the proposed new Clause as present is that the matter is being considered by the Royal Commission and I stressed the desirability of awaiting their Report before making a change in the general law, which has existed for so long.

Mr. Mitchison: Has the hon. and learned Gentleman considered the terms of reference of the Royal Commission? It is true that if one looks through them very carefully one may be able to push this provision in, but it is certainly very far from being a primary or anywhere near a primary object of the Royal Commission.

The Solicitor-General: I am told that it is being considered.

Question put, "That the Clause be read a Second time."

The Committee divided: Ayes, 213; Noes, 231.

Division No. 197.]
AYES
[9.20 p.m.


Acland, Sir Richard
Foot, M. M.
Mason, Roy


Adams, Richard
Fraser, Thomas (Hamilton)
Mayhew, C. P.


Albu, A. H.
Freeman, John (Watford)
Messer, Sir F.


Allen, Scholefield (Crewe)
Freeman, Peter (Newport)
Mikardo, Ian


Anderson, Frank (Whitehaven)
Gaitskell, Rt. Hon. H. T. N.
Mitchison, G. R.


Awbery, S. S.
Gibson, C. W.
Monslow, W.


Baird, J.
Glanville, James
Moody, A. S.


Barnes, Rt. Hon. A J.
Gooch, E. G.
Morgan, Dr. H. B. W.


Bartley, P.
Gordon-Walker, Rt. Hon. P. C.
Morley, R.


Beattie, J.
Greenwood, Anthony (Rossendale)
Morris, Percy (Swansea, W.)


Bellenger, Rt. Hon. F. J
Grenfell, Rt. Hon. D. R.
Mort, D. L.


Benn, Hon. Wedgwood
Grey, C. F.
Moyle, A.


Beswick, F.
Griffiths, David (Rother Valley)
Mulley, F. W.


Bins, G. H. C.
Griffiths, Rt. Hon. James (Llanelly)
Murray, J. D.


Blackburn, F.
Grimond, J.
Nally, W.


Blenkinsop, A.
Hale, Leslie
Neal, Harold (Bolsover)


Blyton, W. R.
Hall, Rt. Hon. Glenvil (Colne Valley)
Noel-Baker, Rt. Hon. P. J.


Boardman, H.
Hall, John T. (Gateshead, W.)
Oldfield, W. H.


Bowen. E. R.
Hamilton, W. W.
Oliver, G. H.


Bowles, F.G.
Hannan, W.
Orbach, M.


Braddock, Mrs. Elizabeth
Hargreaves, A.
Padley, W. E.


Brockway, A. F.
Harrison, J. (Nottingham, E.)
Paget, R. T.


Brook, Dryden (Halifax)
Hastings, S.
Paling, Rt. Hon. W. (Dearne Valley)


Broughton, Dr. A. D. D.
Hayman, F. H.
Palling, Will T. (Dewsbury)


Brown, Thomas (Ince)
Henderson, Rt. Hon. A. (Rewley Regis)
Palmer, A. M. F.


Burke, W. A.
Hobson, C. R.
Pannell, Charles


Buton, Miss F. E.
Holman, P.
Pargiter, G. A.


Butler Herbert (Hackney, S.)
Holmes, Horace (Hemsworth)
Parker, J.


Callagan, L. J.
Holt, A. F.
Paton, J.


Castle Mrs. B.A.
Houghton, Douglas
Peart, T. F.


Champion, A. J.
Hudson, James (Ealign, N.)
Popplewell, E.


Coldrick, W.
Hughes, Cledwyn (Anglesey)
Price, Joseph T. (Westhoughton)


Collick, P. H.
Irvine, A. J. (Edge Hill)
Price, Philips (Gloucestershire, W.)


Craddock, George (Bradford, S.)
Irving, W. J. (Wood Green)
Proctor, W. T.


Crosland, C. A. R.
Isaacs, Rt. Hon. G. A.
pursey, Cmdr. H.


Crossman, R.H.S.
Janner, B.
Reeves, J.


Daines, P.
Jay, Rt. Hon. D. P. T.
Reid, Thomas (Swindon)


Dalton Rt. Hon.H.
Jegger, George (Goole)
Rhodes, H.


Darling, George (Hillsborough)
Jenkins, R. H. (Stechford)
Richards, R.


Davies, Ernest (Enfield, E.)
Johnson, James (Rugby)
Roberts, Albert (Normanton)


Davis Harold (Leek)
Jones, David (Hartlepool)
Robinson, Kenneth (St. Pancras, N.)


Davies, Stephen (Merthyr)
Jones, Jack (Rotherham)
Rogers, George (Kensington, N.)


Deer, G.
Jones, T. W. (Merioneth)
Royle, C.


Dolargy, H. J.
Keenan, W.
Shackleton, E. A. A.


Dodds, N.N.
Key, Rt. Hon. C. W
Shawcross, Rt. Hon. Sir Hartley


Donnelly, D.L.
King, Dr. H. M.
Shinwell, Rt. Hon. E.


Dugdale, Rt. Hon. John (W. Bromwich)
Kinlay, J.
Short, E. W.


Ede, Rt. Hon. J. C.
Lee, Frederick (Newton)
Shurmer, P. L. E.


Edelman, M.
Lever, Harold (Cheetham)
Silverman, Julius (Erdington)


Edwards, Rt. Hon. John (Brighouse)
Lever, Leslie (Ardwick)
Simmons, C. J. (Brierley Hill)


Edwards, Rt. Hon. Ness (Caerphilly)
Lipton, Lt.-Col. M.
Skeffington, A. M.


Edwards, W. J. (Stepney)
MacColl, J. E.
Slater, Mrs. H. (Stoke-on-Trent)


Evans, Albert (Islington, S.W.)
McGhee, H. G.
Slater, J. (Durham, Sedgefield)


Evans, Edward (Lowestoft)
McKay, John (Wallsend)
Smith, Ellis (Stoke, S.)


Evans, Stanley (Wednesbury)
McLeavy, F.
Smith, Norman (Nottingham, S.)


Fernyhough, E.
MacPherson, Malcolm (Stirling)
Snow, J. W.


Finch, H. J.
Mainwaring, W. H.
Soskice, Rt. Hon. Sir Frank


Fletcher, Eric (Islington, E.)
Mallalieu, E. L. (Brigg)
Sparks, J. A.


Follick, M.
Mallalieu, J. P. W. (Huddersfield, E.)
Stewart, Michael (Futham, E.)




Stross, Dr. Barnett
Ungoed-Thomas, Sir Lynn
Williams, David (Neath)


Swingler, S. T.
Usborne, H. C.
Williams, Rev. Llywelyn (Abertiltery)


Sylvester, G. O.
Viant, S. P.
Williams, Ronald (Wigan)


Taylor, Bernard (Mansfield)
Weitzman, D.
Williams, W. B. (Droylsden)


Taylor, John (West Lothian)
Wells, Percy (Faversham)
Williams, W. T. (Hammersmith, S.)


Taylor, Rt. Hon. Robert (Morpeth)
Wells, William (Walsall)
Winterbottom, Ian (Nottingham, C.)


Thomas, David (Aberdare)
West, D. G.
Winterbotlom, Richard (Brightside)


Thomas, George (Cardiff)
Wheeldon, W. E.
Wyatt, W. L.


Thomas, Iorwerth (Rhondda, W.)
White, Henry (Derbyshire, N.E.)
Yates, V. F.


Thomas, Ivor Owen (Wrekin)
Whiteley, Rt. Hon. W.
Younger, Rt. Hon. K.


Thomson, George (Dundee, E.)
Wigg, George



Tomney, F.
Wilkins, W. A.
TELLERS FOR THE AYES:


Turner-Samuels, M.
Willey, F. T.
Mr. Pearson and Mr. Arthur Allen.




NOES


Aitken, W. T.
Godber, J. B.
Marples, A. E.


Allan, R. A. (Paddington, S.)
Gough, C. F. H.
Marshall, Douglas (Bodmin)


Alport, C. J. M.
Gower, H. R.
Maude, Angus


Amory, Heathcoat (Tiverton)
Graham, Sir Fergus
Maudling, R.


Arbuthnot, John
Gridley, Sir Arnold
Maydon, Lt.-Comdr. S. L.C.


Ashton, H. (Chelmsford)
Grimston, Hon. John (St. Albans)
Medlicott, Brig. F.


Assheton, Rt. Hon. R. (Blackburn, W)
Grimston, Sir Robert (Westbury)
Mellor, Sir John


Astor, Hon. J. J.
Hall, John (Wycombe)
Malson, A. H. E.


Baldock, Lt.-Cmdr. J. M.
Harden, J. R. E.
Moore, Lt.-Col. Sir Thomas


Baldwin, A. E.
Hare, Hon. J. H.
Nabarro, G. D. N.


Banks, Col. C.
Harris, Frederic (Croydon, N.)
Nicholls, Harmar


Barber, Anthony
Harris, Reader (Heston)
Nicholson, Godfrey (Farnham)


Baxter, A. B.
Harrison, Col. J. H. (Eye)
Nicolson, Nigel (Bournemouth, E.)


Beach, Maj. Hicks
Harvey, Air Cdre. A. V. (Macelesfield)
Nield, Basil (Chester)


Bell, Philip (Bolton, E.)
Harvey, Ian (Harrow, E.)
Noble, Cmdr. A. H. P.


Bennett, F. M. (Reading, N.)
Harvie-Watt, Sir George
Nugent, G. R. H.


Bennett, Dr. Reginald (Gosport)
Hay, John
Nutting, Anthony


Bevins, J. R. (Texteth)
Heald, Sir Lionel
Oakshott, H. D.


Birch, Nigel
Heath, Edward
O'Neill, Phelim (Co. Antrim, N.)


Black, C. W.
Higgs, J. M. C.
Ormsby-Gore, Hon. W. D.


Bossom, Sir A. C.
Hill, Dr. Charles (Luton)
Orr, Capt. L. P. S.


Boyd-Carpenter, J. A.
Hill, Mrs. E. (Wythenshawe)
Orr-Ewing, Charles Ian (Hendon, N.)


Boyle, Sir Edward
Hinchingbrooke, Viscount
Osborne, C.


Braine, B. R.
Hirst, Geoffery
Partridge, E.


Braithwaite, Sir Albert (Harrow, W.)
Holland-Martin, C. J.
Peake, Rt. Hon. O.


Braithwaite,Lt.-Cdr. G. (Bristol, N.W.)
Holmes, Sir Stanley (Harwich)
Perkins, W. R. D.


Bromley-Davenprt, Lt.-Col. W. H.
HopkinUn, Rt. Hon. Henry
Peto, Brig, C. H. M.


Buchan-Hepburn, Rt. Hon P. G. T.
Hornsby-Smith, Miss M. P.
Peyton, J. W. W.


Bullard, D. G.
Horobin, I. M.
Pickthorn, K. W. M.


Bullus, Wing Commander E. E.
Horsburg, Rt. Hon. Florence
Pilkington, Capt. R. A.


Burden, F. F. A.
Howard, Gerald (Cambridgeshire)
Pitman, I. J.


Butcher, Sir Herbert
Howard, Hon. Greville (St. Ives)
Powell, J. Enoch


Campbell, Sir David
Hudson, W. R. A. (Hull, N.)
Price, Henry (Lewisham, W.)


Carr, Robert
Hulbert, Wing Cdr. N. J.
Prior-Palmer, Brig. O. L.


Channon, H.
Hurd, A. R.
Profumo, J. D.


Clarke, Col. Ralph (East Grinstead)
Hutchinson Sir Geoffrey (Ilford, N.)
Raikes, Sir Victor


Clarke, Brig. Terence (Portsmouth, W.)
Hylton- Foster, H. B. H.
Rayner, Brig. R.


Cole, Norman
Jenkins, Robert (Dulwich)
Redmayne, M.


Conant, Maj. R. J. E.
Johnson, Eric (Blackley)
Rees-Davies, W. R.


Craddock, Beresford (Spelthorne)
Johnson Howard (Kemptown)
Remnant, Hon. P.


Crookshank, Capt. m. Hon. H. F. C
Jones, A. (Hall Green)
Renton, D. L. M.


Crosthwaite-Eyre, Col. O. E.
Joynson-Hicks Hon L. W.
Roberts, Peter (Heeley)


Crouch, R. F.
Keeling, Sir Edward
Robertson, Sir David


Crowder, Sir John (Finchley)
 Kerr, H. W.
Robinson, Roland (Blackpool, S.)


Crowder, Petre (Ruislip—Northwood)
Lambert, Hon. G.
Robson-Brown, W.


Davidson, Viscountess
Lannaster Col. C. G.
Rodgers, John (Sevenoaks)


Deedes, W. F.
Law Rt. Hon R. K.
Roper, Sir Harold


Digby, S. Wingfield
Legge-Bourke, Maj. E. A. H.
Ropner, Col. Sir Leonard


Dodds-Parker, A. D.
Legh, Hon. Peter (Petersheld)
Russell, R. S.


Donner, Sir P. W.
Linstead, Sir H. N.
Ryder, Capt. R. E. D.


Doughty, C. J. A.
Lloyd, Rt. Hon. Selwyn (Wirral)
Savory, Prof. Sir Douglas


Drayson G. B.
Lockwood, Lt.-Col. J. C.
Scott, R. Donald


Drewe, Sir C.
Low, A. R. W.
Scott-Miller, Cmdr. R.


Dugdale, Rt. Hon. Sir T. (Richmond)
Lucas, Sir Jocelyn (Portsmouth, S.)
Shepherd, William


Eccles, Rt. Hon. Sir D. M.
Lucas, P. B. (Brentford)
Simon, J. E. S. (Middlesbrough, W.)


Erroll, F. J.
Lucas-Tooth, Sir Hugh
Smthers, Sir Waldron (Orpington)


Fell, A.
McAdden, S. J.
Smyth, Brig, J. G. (Norwood)


Finlay, Graeme
McCorquodale, Rt. Hon. M. S.
Spearman, A. C. M.


Fisher, Nigel
Macdonald, Sir Peter
Speir, R. M.


Fleetwood-Hesketh, R. F.
Mackie, J. H. (Galloway)
Stanley, Capt. Hon. Richard


Fletcher-Cooke, C.
Maclean, Fitzroy
Stevens, G. P.


Ford, Mrs. Patricia
Macleod, Rt. Hon. Iain (Enfield, W.)
Steward, W. A. (Woolwich, W.)


Foster, John
Macmillan, Rt. Hon. Harold (Bromley)
Stoddart-Scott, Col. M.


Fraser, Hon. Hugh (Stone)
Macpherson, Niall (Dumfries)
Strauss, Henry (Norwich, S.)


Fraser, Sir Ian (Morecambe &amp; Lonsdale)
Maitland, Comdr. J. F. W. (Horncastle)
Summers, G. S.


Gammans, L. D.
Manningham-Buller, Sir R. E.
Sutcliffe, Sir Harold


Garner-Evans, E. H.
Markham, Major Sir S. F.
Taylor, Charles (Eastbourne)


George, Rt. Hon. Maj. G. Lloyd
Marlowe, A. A. H.
Taylor, William (Bradford, N.)







Thomas, Leslie (Canterbury)
Wakefield, Edward (Derbyshire, W.)
Williams, Sir Herbert (Croydon, E.)


Thomas, P. J. M. (Conway)
Wakefield, Sir Wavell (St. Marylebone)
Williams, Paul (Sunderland, S.)


Thompson, Lt.-Cdr. R. (Croydon, W.)
Ward, Hon. George (Worcester)
Williams, R. Dudley (Exeter)


Thorneycroft, Rt. Hn. Peter (Monmouth)
Ward, Miss I. (Tynemouth)
Wills, G.


Tilney, John
Waterhouse, Capt. Rt, Hon. C.
Wilson, Geoffrey (Truro)


Turner, H. F. L.
Webbe, Sir H. (London &amp; Westminster)
Wood, Hon. R.


Turton, R. H.
Wellwood, W.
York, C.


Vans, W. M. F.
Williams, Rt. Hon. Charles (Torquay)



Vaughan-Morgan, J. K.
Williams, Gerald (Tonbridge)
TELLERS FOR THE NOES:




Mr. Studholme and Mr. Kaberry.

New Clause.—(AMENDMENT OF FINANCE ACT, 1946.)

Section forty-six of the Finance Act, 1946 (which, inter alia, increased the size of estates on which no duty is payable), shall have effect and shall be deemed always to have had effect as if the following proviso were added thereto:
Provided that nothing in this section shall effect the relief given by subsection (2) of section five of the Finance Act, 1894 (which relates to settled property), so far as respects the payment of estate duty on the death of the surviving party of a marriage in cases where but for the passing of this Act estate duty would have been paid upon the death of the other party to the marriage." —[Major Hicks Beach.]

Brought up, and read the First time.

9.30 p.m.

Major W. Hicks Beach: I beg to move, "That the Clause be read a Second time."
The object of this new Clause is to put right an anomaly arising under Section 46 of the Finance Act, 1946. Under that Section, which was introduced with the approval of all parties, the exemption of Estate Duty liability was raised from £100 to a limit of £2,000. As I understand the position, that exemption operates perfectly well in the case of estates where aggregation does not arise, but certain complications, and, in particular, complications to which I propose to refer, have arisen in the case of aggregation between two estates under the present law.
I think I should briefly refer to the position so far as aggregation is concerned. All interests of a person on decease are aggregated for purposes of arriving at the duty and for allocating the rate of duty to the interests concerned. Perhaps I may give a short example. If a man or woman died with an estate of £10,000 and they had a life interest in a settlement of £5,000, those two interests would be aggregated and duty would be payable on the £15,000 at that rate.
I should mention that there are several important concessions to the taxpayer in aggregation at present. In the first place, there is a concession which arises under

Section 5 of the 1894 Act as amended, which, in effect, does this. It provides that duty is not payable twice on the death of two spouses in respect of a settlement or will in which a life interest is given. There is also an important concession under Section 16 of the Act, as amended by the 1946 Finance Act, whereby, in effect, estates up to £1,000 are not aggregable for duty.
The best way of explaining the object of this Clause is to give an example of where I think the anomaly which I seek to remove has arisen. I make no apology for having mentioned this example before in 1951. My attention was drawn to a case in which a woman died in 1946 after the passing of the 1946 Finance Act, leaving an estate of £1,400. Very properly, her advisers claimed exemption for that estate, and no duty was payable on her death. Under her will she gave her life interest to her second husband, her first husband having predeceased her. She gave the capital subject to the life interest to her daughter of her first marriage.
Subsequently, the second husband died. It so happened that he died with an estate of £9,000. It was claimed, quite properly, by the Revenue that the life interest in the £1,400 of the second husband meant, in effect, that that estate over which the husband had no control at all fell to be aggregated with the £9,000. That meant that there was a claim of something in the neighbourhood of £60. This is where the anomaly arises.
If that lady, when she died shortly after the passing of the 1946 Finance Act, had been worth £2,001, her estate would have paid duty because that estate was over the £2,000, and the duty would have been £1. Having paid that duty, it would have meant that her estate, in the circumstances as they were, would not have been aggregated with her second husband's estate. Her estate had another grievance in so far as if she died before the passing of the 1946 Act, the estate would have had to pay less duty than, in fact, actually happened, because duty


would have been paid at the old rate. I suggest that this is an anomaly which cannot have been the intention of Parliament at the time when the 1946 Finance Bill was introduced.
As regards the new Clause, those of us who are members of either branch of the legal profession will agree that to try to draw a Clause which is understandable dealing with Estate Duty problems is one of the hardest things we could have to do, because so many Amendments since 1894 have been passed into law that it is extremely difficult to do. However, I believe that this Clause will carry out the object which I have in mind, but, for the assistance of hon. Members of the Committee, I might say that all I am seeking to do is to ensure that, once an estate has been exempted from duty, it cannot again come to aggregation at a later date. I hope the new Clause does that quite simply, and it is the only object.
I would say, in conclusion, that this is a limited and small point, but it is an attempt to help small estates. I am one of those who believe that the time has come when there should be a review of the whole system of aggregation as far as Estate Duty is concerned, and I am encouraged by some remarks made by the Financial Secretary when it was suggested that some sort of review might have been contemplated in other directions as far as Estate Duty is concerned. I should be perfectly happy if I received an assurance from the Government that this particular point of aggregation is to be included in that review. This new Clause is a start in the right direction towards curing one of the many anomalies that exist in the law of aggregation.

The Solicitor-General: My hon. and gallant Friend the Member for Cheltenham (Major Hicks Beach) has drawn attention to one of the anomalies which arise from the application of this part of the Finance Act, 1946, relating to Estate Duty. It is the case that the effect of raising the limit of exemption from Estate Duty has meant that, where there is several property on the death, for instance, of the first spouse, no duty is paid, and, therefore, there can be no exemption on the death of the second spouse, but that is only one of a number of anomalies. In that case, it will depend

upon whether the estate of the first spouse is greater than the estate of the second; if it is greater, the Revenue will win, if it is less, the estate will gain.
There are a large number of anomalies, and that is one of the reasons why my right hon. Friend has said that the matter is being fully considered, and why my hon. Friend the Economic Secretary made a statement with regard to it earlier this afternoon. I am glad to hear that that announcement gave pleasure to my hon. and gallant Friend, and I hope that, in the circumstances, he will withdraw the proposed new Clause, because I assure him that this anomaly and the others in relation to aggregation, with which we are all familiar, will be considered in the course of that review.

Major Hicks Beach: In view of the statement of my hon. and learned Friend the Solicitor-General, I beg to ask leave to withdraw the Motion.

The Deputy-Chairman: Is it the Committee's pleasure that the Motion and Clause be withdrawn?

Hon. Members: No. We did not hear the hon. Member.

Question put, and negatived.

New Clause.—(LIMITATION OF DISTRIBUTION CHARGE FOR PROFITS TAX.)

Subsection (3) of section thirty of the Finance Act, 1947, shall be amended so that the amount on which a distribution charge is payable is the amount by which the net relevant distributions to proprietors for any chargeable accounting period exceeds the profit for that period chargeable to profits tax reduced by the amount which after deducting income tax at the standard rate for the year in which the chargeable accounting period ends is equal to the total of the profits tax and excess profits levy payable for that period; and the proviso to the said subsection (3) and paragraph 1 of the Seventh Schedule to the Finance Act, 1952, shall be amended by substituting for the references to the amounts on which reliefs for non-distribution relief have been given for previous accounting periods references to those amounts reduced by the amount which after deducting income tax at the standard rate for the year in which the relevant accounting period ended is equal to the total of the profits tax and excess profits levy payable for that period.— [Mr. Stevens.]

Brought up, and read the First time.

Mr. G. P. Stevens: I beg to move, "That the Clause be read a Second time."
This proposal affects distribution, for profits tax purposes. Profits Tax in its present form is effective from 1st January, 1947. There are undoubtedly bad features about the Profits Tax as about all taxes on profits, and it is one of those bad features that the new Clause proposes to remove.
It is usually thought that when a company pays dividends to its shareholders it recovers from them the taxes which have been charged upon the profits of the company, but that can only be true to the extent to which the aggregate of dividends distributed to the shareholders is equivalent to the profits which the company has made, and even that generality is not true. It is only partly true, because a company cannot recover from its shareholders the Profits Tax which it has to pay, the Excess Profits Levy, or the tax deducted from the dividends which it pays to them, or Income Tax applicable to the Profits Tax and the Excess Profits Levy which it has to suffer.
Let me give the simplest possible illustration, which is the only kind I can ever understand. Take the case of a company which has no Excess Profits liability. The company can only physically distribute to its shareholders by way of dividend a maximum of 70 per cent. of its profits. The balance of 30 per cent. is absorbed in Profits Tax, and Income Tax on the 30 per cent., which is not recoverable from the dividend. The present basis of the computation of Profits Tax ignores this anomaly altogether. It operates particularly harshly if, for example, a manufacturing company has accumulated reserves and invested those reserves in investments, and, subsequently, sells those investments at a profit which is not chargeable for Income Tax purposes; and it then distributes part of these non-taxable profits to its shareholders.
Again this particular anomaly, as I think it to be, of the Profits Tax acts very harshly in the case of a liquidation, if a company, from capital profits acquired in the past and not chargeable to Income Tax or to Profits Tax, or from reserves built up before 1st January, 1947, distributes on liquidation more

than the paid-up share capital of the company. I do not wish to delay the Committee on a purely technical point, which none the less can and does inflict very severe hardship in a number of cases. The proposed new Clause seeks to limit the amount demanded for Profits Tax to the amount distributable as profit of the year to the shareholders after making provision for tax liability. I hope that the Economic Secretary will see the sweet reason of my argument and will accept the Clause.

Mr. Maudling: This new Clause is of considerable complexity. It appears to arise principally from the fact that Profits Tax payments do not rate as deductions in calculating profit for the purpose of Profits Tax assessments. They do not rank as distributions. Therefore, to the extent that a company has, out of its gross profit, to pay Profits Tax, the gross equivalent of what they have paid is treated as if it were put to reserve, though it is paid out in the form of Profits Tax. Therefore, prima facie it does not seem unreasonable that if at a subsequent time distribution should exceed current profits there should be clawed back an equivalent amount out of what has been treated as having been put in reserve.
A position like this would arise, of course, as the law stands in the case of a company which in any particular year makes a gross distribution equal to its full profits. Any company that seeks to make in a particular year a gross distribution equal to full profits and has to meet Income Tax, Profits Tax and distribution can only do this by having recourse to sources outside the year's profits.

9.45 p.m.

Mr. Stevens: Would it apply to a company which made profits in years gone by and, having followed a prudent policy by placing profits to reserve, paid a dividend out of the resources of the past?

Mr. Maudling: Taking one year, as it stands obviously one cannot make a full distribution and pay Profits Tax without having recourse to some outside funds, be they reserves or something else. Assuming that that is so, surely it would be anomalous to deal differently with the case of a company which made less than


the full distribution in 1947 but later brought up its post-1946 distribution to the total of the post-1946 profits by recourse to previously existing reserves. This is a complicated point. It is an argument for the law as it stands apart from the whole principle underlying the Profits Tax of the importance of putting to reserve and discouraging distribution.
I know that a number of distinguished professional bodies maintain that this feature of Profits Tax law is based on a fallacy in that it is assumed that the amount not distributed is available to shareholders in the form of reserves, whereas in fact it has to be paid in Profits Tax. That is an argument that is being considered by the Royal Commission at the moment. I ask my hon. Friend to await the conclusion of the Royal Commission on the point. I am advised that to accept the new Clause would cost some £3 million. That may not be an exact assessment but, obviously, it would be a large sum and therefore my right hon. Friend the Chancellor would certainly not be prepared to accept the new Clause at the present time.
But my right hon. Friend recognises that there are feelings among important bodies of professional people that this principle upon which the Profits Tax is based is wrong. He is glad, therefore, that the Royal Commission is to have the benefit of the opinion of professional bodies, and he would like to await the Royal Commission's Report. In that light I suggest that my hon. Friend might withdraw his Motion.

Mr. Stevens: I am not tremendously impressed with £3 million where justice is concerned, but I am impressed by my hon. Friend's statement that the matter is before the Royal Commission, who I feel sure will pay attention to our deliberations this evening. For that reason I beg to ask leave to withdraw the Motion.

Motion and Clause, by leave, withdrawn.

New Clause.—(AMENDMENT OF S. 20 OF INCOME TAX ACT, 1952.)

Section twenty of the Income Tax Act, 1952, shall read as if there were included after subsection (4) thereof the following subsection: —
(5) If the surveyor shall after a statement has been delivered under subsection (4) of this section by a notice served on the person who has delivered the statement so

require, such person shall within the time limited by the notice swear and deliver to the surveyor an affidavit that to the best of the knowledge information and belief of such person after due and proper enquiry made by him all amounts by which the gross amount of any profits, gains or income, as the case may be, returned by such person in the statement have been reduced, being the amounts of any expenditure incurred by such person or anyone in his employment, or in the case of a limited company, any director officer or servant of such company in the provision of entertainment of any character, were

(a) in the case of a person chargeable under Schedule D in respect of the profits or gains of a trade profession or vocation disbursements or expenses wholly and exclusively laid out or expended for the purposes of such trade profession or vocation, and
(b) in the case of a person chargeable under Schedule E in respect of the income from an office or employment expenses incurred wholly exclusively and necessarily in the performance of the duties of the said office or employment.


In the case of a limited company, such affidavit shall be jointly sworn by the secretary of the company and one director and any person failing without reasonable excuse to comply with any such notice so served on him by the surveyor shall be liable to be proceeded against and punished as provided for in subsection (3) of section twenty-five of this Act."—[Sir F. Soskice.]

Brought up, and read the First time.

Sir F. Soskice: I beg to move, "That the Clause be read a Second time."
This Clause seeks to include a new subsection in Section 20 of the Income Tax Act, 1952. It deals with a subject which, I put it to the Committee, is really of the greatest importance—the question of preventing abuse in the matter of charging entertainment expenses as an expense against profits.
I want to make one or two preliminary observations. On each side of the Committee there are very acute differences of opinion as to the proper level of Income Tax and the right way in which to extend it. Those are perfectly natural and legitimate subjects of difference. I feel sure, however, that there is one thing on which all Members of the Committee are agreed. Whatever the rate of tax, however the tax is charged, and to whatever purpose the proceeds of a tax are applied, everyone would agree that the law with regard to the exaction of tax should be enforced and that any abuse in which an individual citizen may indulge at the expense of his fellow taxpayers should


be repressed in every possible, reasonable manner. There are obviously lengths to which we, in this democratic country, could not think of going, but it is our duty as a Committee, when we are faced with an abuse, to cast about to see whether there are proper and not excessive means to combat it.
My second observation is that it is sometimes said that the complaint about abuse in relation to expenses is a kind of canard which is used for political purposes. I ask the Committee to believe me when I say that we are not moving this new Clause for that purpose; nor do I want it to be thought that I am suggesting that there is a great body of taxpayers who habitually indulge in shocking abuses of the existing tax laws That would be very much of an overstatement. But I do say that there is a small minority of taxpayers—I am afraid I cannot give evidence as to the exact number, but I think we are all conscious of it from our ordinary conversations and reading—who habitually abuse the provisions with regard to expenses at the expense of their fellow taxpayers.
In this new Clause we aim at a very small part of the abuse—that part which consists in illegitimately charging against profits certain entertainment expenses. On that topic I would say that some expenses of an entertainment character are perfectly properly charged, and the courts have so said it. Anybody who has had experience of particular classes of business and other activities must realise that it is a necessary incident in the carrying on of those activities that one has to expend a certain amount in entertainment. With regard to the persons who have to incur that type of expense I have nothing to say, and this new Clause does not deal with them.
There is a second category of expense which I somewhat distinguish, because it is on the borderline. Those who charge that type of expense against their Income Tax return are somewhat stretching the bow in their own favour, and sometimes they step over the line of probity into the area of illegitimate deduction. The persons I am dealing with are none of those. I am referring to the people who habitually, day in and day out, charge expenses which they know they have not the slightest legal or moral justification to

claim as expenses necessarily or reasonably incurred by them in the conduct of their business.
With regard to that category of person, I feel sure that the whole Committee will agree that we should take action, if we can properly and reasonably do so. We may disagree as to the proportion of taxpayers indulging in that kind of abuse and the extent to which they do so, but I am sure I can appeal to the experience of every Member of this Committee not, perhaps, to produce concrete evidence of particular cases, but at any rate to draw upon his own experience and recollection, to say that he has the strong impression that there is a very considerable volume of abuse in that direction. It is a matter which certainly gives my hon. Friends very great concern, and I feel sure that it gives equal concern to hon. Gentlemen opposite.
Those are the premises from which I start. It is not my purpose to try to retail instances. Probably all of us could do so. They are very often founded upon rumour, and, in retailing them one may be doing a considerable injustice to individuals or groups of individuals. There may be a perfectly good answer which is not apparent on the surface, and it may appear at first sight that the abuse must exist and that it cannot be gainsaid. Therefore, I do not wish to retail instances. But I put it to the Committee that the body of evidence that one accumulates from one's ordinary contacts and conversations is so strong as to make it obvious that there is very considerable abuse which ought to be repressed.
That is the problem, and the question then arises as to what are the right steps to take to repress it. I and my right hon. and hon. Friends who have put our names to the Clause have done so primarily to draw the attention of the Committee to the problem and to invite the Committee's judgment upon it. The remedy which we suggest in the Clause may be inappropriate, but I commend it to the Committee for certain reasons which I shall elaborate. It may be that there are good answers to the suggestion, but we shall have achieved our purpose if we engage the Committee upon a serious and earnest discussion upon what we think is the real, serious social problem.
I invite the Committee to consider the method that we have adopted for the


purpose of the new Clause. We propose that the surveyor should be entitled to ask any person whom he suspects to swear an affidavit that the proportion of his expenses which consist of entertainment expenses have been legitimately incurred. Hon. Members may say that that does not seem to achieve a great deal, but when one looks into it more closely there are a number of reasons to commend the suggestion. To begin with, if we are trying to deal with the abuse, we must try at all costs to avoid saddling the enormous majority of perfectly respectable and honest taxpayers with a lot of inconvenience and trouble with which they ought not to be saddled. The remedy that we seek should be a remedy which will not weigh heavily upon those who are conscientious in their tax returns.
Also, any remedy that we devise must be one which we can feel may, at any rate, have some effect. The only remedy which would be certain to achieve its object would, I suppose, be some kind of completely violent system of inquisitorial examination of everybody's books, documents and papers, coupled with some form of cross-examination. That obviously goes much too far and I do not suggest it. What I do suggest has something to commend it.
I would again remind the Committee that the type of individual with which I am trying to deal is the one who has charged against his profits large sums which he knows in his heart of hearts cannot conceivably be justified and which are absolutely dishonest and thoroughly corrupt and fraudulent. I would seek through the medium of the proposed Clause to put it within the power of the surveyor to call upon that person to swear that of the amount by which his gross receipts have been reduced in order to bring down the net receipts the deduction which represents entertainment expenses consists of expenses legitimately incurred.
It may well be said that a fraudulent person of that kind will not mind putting his name to an affidavit. That is an argument which one must obviously consider and to which one must give weight, but I suggest that there is less in that argument than might at first sight appear. There is something formal and frightening about putting one's name to an affidavit. If a man knows perfectly well

that he has been guilty of a course of conduct which, should it be investigated, he will not be able to justify, and if he is being asked to swear on oath an affidavit that that conduct was legitimate when he knows he cannot possibly say that it was legitimate, and if he, therefore, knows that the consequences of swearing a false affidavit are that he may be prosecuted for perjury, he may well hesitate before putting his name to it.
10.0 p.m.
Therefore, I claim that the merit of this suggestion—I do not say that it is necessarily perfect, indeed, I would repeat that it is far from a perfect suggestion—is that it is an attempt to contribute to the solution of this problem. What I seek to do, therefore, is to hold over the heads of persons who are minded to indulge in that type of abuse some fear—the fear that they may be called upon either to withdraw their claim, in itself an admission of guilt, or to go further and commit themselves to the extent of swearing an affidavit and, therefore, rendering themselves liable to prosecution for perjury should there be an investigation and should it be brought to light that what they have done is wholly against the law.
The Financial Secretary may well say to me that already under Section 20 (2) the return has to be verified by a declaration, and I quite agree that that is a point again to be considered; but I do draw a distinction between making a general declaration, which one does at the foot of an Income Tax return, itself if it is not true rendering one liable to penalties, and which, I suppose, a large number of people come to regard as something which is mere routine and pay less attention to for that reason—and being called upon by a surveyor, who obviously by so calling upon one is indicating that he is suspicious about one, to file an affidavit and swear that the expenses incurred are legitimate.
I would put this to the Financial Secretary and ask him very seriously to consider it. I hope that other hon. Members of the Committee will also consider and weigh this argument: that if it becomes generally known, as it would if this were part of the law of the land, that if one is minded to defraud the Revenue, one may find oneself in an extremely awkward position, either of


having to go further and by making this formal deposition render oneself liable to proceedings for perjury or withdraw one's claim in respect of expenses, thereby admitting guilt to the surveyor or anyone else who may be concerned—if it becomes known that this is a situation in which these fraudulent people may find themselves, I put it to the Committee that will be a very considerable inducement to these persons to refrain at any rate from the grosser types of conduct upon which some of them embark at the moment.
That is the case for this Clause. The case, if I may shortly summarise it, is this. There is an obvious abuse. We ought to find if we possibly can a remedy for that abuse. That remedy should not be one which weighs heavily on the innocent, but one which can be used in a discriminatory way against those who are guilty. It can be used simply without there having to be a great deal of administrative fuss and bother before the machinery can be set into operation. It does not involve placing a great many powers in the hands of the surveyor which he already has not got.
Supposing that an affidavit is sworn and it is then thought that an investigation is desirable, and perhaps the police are engaged on an investigation, it is not then within the province of the inspector to take the necessary criminal proceedings. That would fall within the jurisdiction of the regular authorities dealing with crime in this country. For these reasons, I commend this Clause as a contribution to thought on this matter and no more. I hope that hon. Members will criticise it and will be able to suggest alternatives. I commend it as simple and as likely, at any rate, to have effect in the case of those minded to commit the grosser abuses, and I commend it as an attempt to remedy what undoubtedly is an abuse which we certainly ought to try to tackle. At this stage of our discussions we as a Committee are really in honour bound to take this problem into consideration, to see whether there is anything we can do to try at any rate to alleviate the worst features of the present existing abuse.

Mr. Houghton: I support my right hon. and learned Friend. The Committee is in the customary dilemma, when

trying to equip the Revenue to fight against evasion and abuse and unlawful operations, of doing that without, at the same time, imposing on the honest taxpayer conditions and requirements he may find at least irksome and may even resent. That is always the problem in trying to provide an armoury for the Revenue to deal with evading taxpayers.
As my right hon. and learned Friend has pointed out, there are two sets of expenses, expenses which are charges against the profits of a business or profession, which are assessable under Schedule D, and the expenses incurred by an employee, or anyone holding an office or employment, and that may be claimed against assessment under Schedule E.
The Committee is familiar with the important difference in the conditions of the two allowances. In the case of expenses incurred under Schedule D, they must be, as paragraph (a) of the proposed new Clause says,
…wholly and exclusively laid out or expended for the purposes of such trade profession or vocation.
The word "necessarily" does not appear in the conditions attaching to allowable expenses against the profits of a business, but when we come to Schedule E, as stated in paragraph (b) of the proposed new Clause, we see that the expenses must be incurred
… wholly exclusively and necessarily in the performance of the duties of the said office or employment.
In practice, the word "necessarily" as a condition of the allowance of expenses under Schedule E, means that the concession is much more tightly drawn in the case of persons holding offices and employments than it is in the case of expenses set against business profits. No business man has to prove to the inspector of taxes that the expense which he charges against his profits was necessarily expended. All he has to prove is that it was exclusively expended in the course of trade or vocation, and I should say that there are more cases which have dealt with allowable expenses under Schedule E than there have been in connection with allowable expenses against business profits.
We cannot, by Amendment of the Finance Bill, import the word "necessarily" into the conditions under which expenses may be charged against business


profits. We could move to delete the word "necessarily" from the conditions of allowable expenses under Schedule E, but that would be misunderstood even though there was an attempt in moving such an Amendment to give equality of treatment as between those who pay under Schedule E and those who are assessed under Schedule D. So we are left with the attempt in this new Clause to tighten up existing conditions.
The Committee must realise that there is a great deal of abuse of expenses allowances. Sometimes, I admit, under Schedule E but much more frequently under Schedule D for the simple reason that claims for expenses under Schedule E come in for more closer scrutiny and pass through a finer sieve than expenses claimed as an admissible deduction against taxable profits, because of the word, "necessarily," which can be applied literally, when business people, including Members of Parliament or anyone who holds public office or is employed, must prove that the expenditure was not only wholly and exclusively incurred but necessarily incurred for the purposes of that office.
Cases taken to the courts have shown that the expenses of getting to one's work is not an expense wholly, exclusively and necessarily incurred for the performance of that office. It is an expense incurred to enable a man to get to his office or to put him in a position to perform the office, but not for the performance of the office. All these points have to be taken into consideration when we come to consider admissible deductions under Schedule E.
There is another safeguard under Schedule E, and that is that there is an employer who can be referred to. There is someone who is responsible for the conditions of service of such a person and, if necessary, the Inland Revenue can ask the employer some questions about the expenses which are said to be necessarily incurred for the performance of the office of the employee. In the case of a business and a director, especially of a private limited company, there is a complete absence of that kind of check.
Earlier in the debate we were hearing about the virtues of the family business. I will not enter into that particular argument at the moment. It must be said, if we are to be honest, that the private limited company offers much greater

scope of this kind for abuse than does the public limited liability company for the very obvious reason that in the private limited company the control and shares are usually held in a very small circle. There is an absence of formality in directors' meetings and in meetings of shareholders. It is all in the family, and many things can be done by those in charge of the private limited companies which would have to pass closer scrutiny in the case of the public company.
We all know of things that people have "on the firm" and here we come to some of them. There are gardeners, household decorations, chauffeurs, the running of private cars and entertainment on a lavish scale. I say, in passing, that there will be no health in British commercial life so long as entertainment is subsidised as heavily as it is out of taxation. If those who wish to give hospitality had to bear the whole cost of it and were not allowed to charge it against their taxable profits for the purpose of Income Tax assessments, I think there would be a great deal less of it.
We all know of cases where luncheon parties, drinks all round and that kind of thing are on the firm, and sometimes it can be argued quite legitimately that that expense is necessarily incurred in the course of business or of trade, but in others it is nothing of the sort. Large numbers of staff can have their lunch daily on the firm. Whether it is ever described in their conditions of service one never knows, but all these abuses are commonly known.
10.15 p.m.
Not long ago a friend of mine undertook what he said was a reliable census of the private cars running about one of our provincial towns. He told me that the majority of them were owned and run by businesses, though at week-ends one would not have believed it, because of the freedom with which private cars can be used on business expenses or their running and maintenance expenses charged against the firm.
It is not pleasant to have to mention these abuses, but we should be less than fair to the majority of honest taxpayers, especially those workers who pay on every penny they earn and cannot escape any tax. Their overtime, their production


bonuses, are all taxed before they receive them and so they cannot fiddle about with them. They are not even given time to pay, which is another advantage that all taxpayers under Schedule D have.
They do not suffer deductions from their pay packets every week. They can postpone payment. They can wait for a second demand note and still go on owing it. They can await a third demand note and still go on owing it. It is not until three months have gone by, and the tax is over £1,000, that the provisions of the Income Tax Act come into operation under which they are charged interest on their unpaid tax. Indeed, some people find it advantageous to pay interest on unpaid tax because they have more profitable uses for the money which would otherwise go to the collector of taxes.
All these things are known to anyone who has anything to do with the Inland Revenue or with the machinery of taxation. They are known to accountants, they are known to business men, because they exchange confidences about these things. They are certainly known to the general public, because they are repeatedly told that the rich pay at 19s. or 19s. 6d. in the £ and the ordinary taxpayer, walking along the street asks, "How does he do it if he is only getting 6d. in the £ out of his large income?" The explanation is plain. He is not doing it out of his own income; he is doing it out of funds provided for him or out of moneys chargeable against the firm.
This new Clause is permissive and selective. It enables the surveyor of taxes —to use his traditional title—to single out, either on suspicions aroused or on a sample check over a specific field of business or vocation. It enables him to press for the closer examination, if not of the expenses allowance, of the conscience of the taxpayer by the taxpayer himself, who will then have to make an affidavit which, as my right hon. and learned Friend says, is more impressive and more solemn a declaration than a simple signature. It would cause the taxpayer to search his mind thoroughly to see whether he was doing something which he ought not to do, in which case he would have the opportunity of disclosing it under very favourable conditions.
As the Committee knows, the Inland Revenue does not believe in making criminals of criminals; what it believes in is making the "blighters" pay. If one looks at the annual report of the Commissioners of Inland Revenue, it will be seen that there are about 11 prosecutions a year and yet the amount recovered in penalties alone was over £4 million last year. This shows that there are financial terms upon which taxpayers who make a voluntary disclosure of a misdemeanour or failure or neglect can settle the matter with the Inland Revenue by payment of the tax lost coupled with varying degrees of penalties according to the degree of failure or neglect or misdemeanour.
If the Financial Secretary says he does not want this new Clause and that he can manage without it, I think he has to satisfy the Comiimittee that these abuses do not exist to the extent to which I am sure all hon. Members of the Committee really know them to exist. He will have to assure the Committee that he will either employ some other weapon, or in some other way tighten up the machinery. We do know that the tax inspectorate of the Inland Revenue is very much understaffed at present. It has much leeway to make up from the war years when, quite properly, many relexations of procedure and investigation were introduced, In the present circumstances it is not possible for the Inland Revenue to apply the close examination to these claims for expenses accounts submitted by firms and businesses as they used to before the war.
The manpower of the Inland Revenue is now being strengthened and it will be in a better position to do the job in a little time than it is now. I am bound to admit that that alone would bring about a very significant improvement in the present position. But the Financial Secretary will realise that even though all the manpower required were available the surveyors of tax lack the power at present to call for the kind of declaration or information which is necessary for them finally to satisfy themselves about the assessment of these people. The power to call for books and records, but no other documents, was provided in the Finance Act, 1942, but that can be exercised only by authority of the Board of Inland Revenue.
It is true that Section 27 of the 1951 Act is bringing to light a great many


cases where, owing to the accumulation of capital sums, there may be some explanation needed of where the money came from and a little more about the condition of their investment. Very many cases arising from that will, I am sure, produce very substantial amounts, but on the expenses problem there is nothing like the power which this new Clause would give the surveyor in his hands at present. I think he needs that, not only for use, but as a warning to those who might be disposed to play fast and loose with their bookkeeping and the handling of their affairs for tax purposes.
I do not think I have overstated the case. When one lives one's official and working life so much among officers of the Inland Revenue one is bound to become impressed with the sort of thing they feel they need to deal more effectively with tax avoidance and the abuses of expenses allowances. I hope that the Financial Secretary will give serious consideration to this matter. There is nothing vindictive in this proposal. There is no desire to do injustice to any taxpayer or to make life any harder for the honest and straightforward taxpayer, but it makes workers very restless—indeed, taxpayers generally are restless—when they see obvious signs of the machine of taxation not doing its job as fully and effectively as it should. There are many signs of that at present. I think the Financial Secretary owes it as a duty to taxpayers of Britain to tighten up the regulations for taxation under Schedules D and E.

Viscount Hinchingbrooke: I shall not occupy the Committee for more than a moment, and I cannot pretend to use the legal language of the right hon. and learned Member for Neepsend (Sir F. Soskice) in these matters or to have the professional experience of the hon. Member for Sowerby (Mr. Houghton). I speak only as an ordinary member of this Finance Committee. I notice again the desire of the party opposite to curtail the opportunity of business men to make profits for their concerns in agreeable circumstances. I notice the constant efforts they make in trying to close loopholes in the law so as to make the law more disagreeable and horrible for everybody I for my part hold the opposite view.
I admit that there are unfair discriminations and distinctions at the present time between the business world and what I would call the professional world —and I say nothing about the House of Commons, on which subject the hon. Member touched lightly, for we can leave that to another occasion. There is no doubt at all that the business world in modern times is able to claim, legitimately or, as the right hon. and learned Gentleman said, occasionally illegitimately, entertainment expenses when the professional world cannot do so, and I agree that in paragraphs (a) and (b) of the new Clause the distinction is made almost explicitly by omitting the word "necessarily"—"necessarily" laid out or expended in the case of the business world.
Whereas hon. Members opposite want to confine the opportunities of business men earning their living in circumstances of enjoyment, I, on the other hand, want to leave them as they are and to open opportunities for men and women in the professional world also to earn their livelihood in circumstances of enjoyment.
It seems to me that on those general grounds the new Clause is indefensible. It is also as naive an attempt as I have seen emanate from the Front Bench of the Opposition in this Parliament. I am astonished that the right hon. and learned Gentleman, with all his legal experience and training, should have attempted to do it. He talked about producing something which was frightening or formidable for the persons he is trying to get at. He talked about threatening with prosecution for perjury and he spoke of there being men who, in their heart of hearts, knew they were doing something wrong.
Are these men who, in their heart of hearts, know they are doing something wrong, going to go back before the surveyor and sign an affidavit saying that the expenses which they have laid out have been genuinely and exclusively and wholly in the performance of their duties as members of the firm? Of course not. Take the member of any business. He may leave his office and go out to entertain somebody to lunch or dinner at a hotel. Has he to go back to the firm forthwith to sign an affidavit saying that he has entertained somebody who is connected with the firm? How will he be able to do so? The thing is ludicrous.

10.30 p.m.

Sir F. Soskice: It rather seems to me that if the noble Lord had managed to read to the end of the Clause he would have seen that if the individual whom he has just been describing declines to sign an affidavit he renders himself liable to penalties set out at the end of the Clause.

Viscount Hinchingbrooke: It is not a question of declining to sign an affidavit. Such a man who has laid out expenditure falsely and in the wrong interest will be the sort of man who is only too willing to sign such an affidavit.

Sir F. Soskice: A moment ago the noble Lord said that a person of that sort would not sign an affidavit. I then said that if he did not be would be punished. Now he says that he would be only too willing to sign it. I again said that if he signed an affidavit falsely and was found out he would again be punished, and this time sent to prison.

Viscount Hinchingbrooke: That begs the whole question. The right hon. and learned Gentleman would never be able to prove that such a man had entertained anybody falsely because he would be completely free to go out on behalf of his firm and entertain whomsoever the firm thought fit. There might even be connivance and collusion in the entertainment. He might be supported by members of the firm in signing a false affidavit. Really the whole administrative system which the right hon. and learned Gentleman postulates in this ridiculous Clause would break down. If the right hon. and learned Gentleman and his hon. Friends want to curtail expenditure falsely incurred, I suggest that they really ought to think up something more clever than this naive and ridiculous device which they put forward.

Mr. Albu: We on this side of the Committee welcome the speech of the noble Lord, except, of course, for his attack on my hon. Friend for the length of his speech. I do not think the noble Lord would have made the attack had he been here during the early stages, because he would have known that the length of the speeches made by hon. Members opposite was responsible for the time at which we are now considering the Clause.
The noble Lord who, I believe, has no business experience, has a romantic view of the business man upon whom he looks as a licensed pirate, and whom he rather admires in his romantic way. He feels that this glorious activity of going out and spending a lot of money in enjoying oneself in business—and in this he was strongly supported by the hon. Member for Kidderminster (Mr. Nabarro), who has a good deal of business experience—is a wonderful fairy tale existence.
But, of course, the truth is that it is an existence which is only carried on in this way by defrauding the Revenue and robbing the rest of the community, who are consumers, of the taxes which they have to pay, and no amount of romanticising in the matter can change that fact.
What is rather extraordinary to me is not so much that no hon. Member opposite, other than the noble Lord, got up to defend the present evasions of tax or very strongly to attack the Clause—I did not really expect that—but that, quite obviously, some hon. Members opposite —not all, because I watched their faces very carefully, and some of them looked very embarrassed indeed while the noble Lord was speaking—enjoy the system under which some people are able to defraud the Revenue.
My hon. Friend pointed out the great difficulties encountered by the Inland Revenue authorities in dealing with this very difficult matter of entertainment. I think that my right hon. and learned Friend the Member for Neepsend (Sir F. Soskice), unlike the noble Lord, has devised a very ingenious method of trying to put a very considerable increase of moral pressure—backed in the end, of course, by the force of the law if they are found guilty of perjury—on those gentlemen who exceed their rightful allowances.
There is not a shadow of doubt that the very jeers that came from the hon. Member for Kidderminster and some of his hon. Friends make us realise that there is not one of them who does not know that this evasion takes place. It takes place in absolutely gross conditions, and it is no good our appealing to the workers of this country to produce more, to raise output and increase exports, if they can see with their own eyes, and


very often in the very buildings in which they work, this sort of thing going on. This is not a question whether a business man should entertain another business man to lunch in order to discuss a matter of business; it is a question of the standard at which that entertainment takes place, and that, it seems to me, is a matter to which we must devote our attention.

Mr. Frederic Harris: Would the hon. Gentleman also suggest what the business man should have for lunch?

Mr. Albu: The hon. Gentleman evidently feels this rather deeply. It is quite interesting to those of us on this side to notice the attitude of some hon. Members opposite. It would be invidious to draw distinctions, but I think we know the hon. Members opposite whom we would expect to oppose this new Clause, and we also know the hon. Members opposite whom we would have hoped would have supported it.
There is nothing in the Clause which attacks the rights of the individual, which increases taxation or even anything that would interfere with legitimate business. It is an attempt to close what is at present an absolutely disgusting loophole in the present method of raising taxation, and which operates absolutely unjustly between those taxpayers who are able to maintain their standard of living very largely out of this very system of entertainment and those taxpayers whose taxes are taken from them before they get their income.
It is no good hon. Members opposite jeering and laughing about this. I know of no issue among ordinary workers and ordinary people on which there is stronger feeling when we come to questions of taxation than this one. I am not at all sure that it is not the one thing in this country that is bringing our whole tax system into disrepute and contempt. We in this country are proud of the fact that we pay our taxes, and that this is not a country in which people seriously try to evade payment of taxation. On the whole, we have a just tax system, but this is one part of the system—one of the most important parts—where there is really a conspicuous expenditure out of tax relief, and that the ordinary people will not bear.
I hope that hon. Gentlemen who have been laughing at this new Clause will think the matter over really seriously, because, if they do not accept the Clause, the time will come when they will have to accept something very much more severe.

Mr. Boyd-Carpenter: Our experience last year, at any rate, demonstrated that this is a topic which is capable of producing a certain amount of heat in this Committee, but I hope that, having had this debate so far, we may be able to come to an appreciation of the narrowness of the point which is raised by this new Clause, which, indeed, was made abundantly clear by the right hon. and learned Gentleman who moved it.
May I say at once that I fully accept the proposition with which he prefaced his observations—the proposition that the law should be enforced and that abuses should be repressed. No one on either side of the Committee would dispute the validity of that proposition, no matter what the level of taxation might be. Let me add, too, that hon. Members on both sides will obviously treat with respect the observations on this subject from the right hon. and learned Gentleman opposite, who had the grim experience of considerable responsibility for enforcing taxation law for a good many years during the period when taxation was higher than, perhaps, it has ever been in any country in time of peace. Therefore, obviously, and I say this with great sincerity, the views of the right hon. and learned Gentleman will certainly command respect.
The point with which we are concerned here is really a very narrow one. We are not, as perhaps one might have understood from the speech of the hon. Member for Sowerby (Mr. Houghton), concerned with the general law as to expenses and allowances; we are not even concerned here with the substantive law with respect to what is or is not liable as expenses by way of entertainment. What we are concerned with, as I understand, is the proposed piece of machinery for the better enforcement of the existing law. That is a very narrow point, which, if I may say with respect, need not be capable of producing excessive heat.
We are solely concerned with the machinery for the enforcement of the law which this Committee lays down, particularly in the Finance Bill. I do not propose to be led away by one or two observations which have been raised, in broad polemical and even exciting discussions, of what is permissible within the existing law.
The point to which I should address myself is whether or not it is necessary to add this proposed piece of machinery to our law for the enforcement of taxation in this one particular aspect, which has been singled out—the aspect of expenses of entertainment. I think the Committee would agree to this proposition; that it is wrong to give to the executive Government of the day additional powers unless and until the Committee is satisfied that there is a genuine need for them.
That is certainly the view some of us have expressed from the other side of the Committee, and it is certainly a view which should commend itself to the Committee. Whether the Government seeks additional powers or. as in this case, the Opposition seeks to thrust further powers upon the Government, the onus of proof is on those who say that those powers are necessary. I am not concerned to argue with the right hon. and learned Gentleman the exact deterrent effect of the signature of an affidavit on a person who, ex hypothesi, is inclined to indulge in tax evasion. That is a difficult question, depending on a correct estimate of the mentality of such an individual. I am not concerned to dispute that it may in certain cases be something of a deterrent. I do not think, with respect to the hon. Member for Sowerby, that it begins to conclude the matter.
I think there was a flaw in his argument when he said that abuses existed and we must, therefore, necessarily accept this proposal. There seems to be a hiatus in his logic there, because surely it is necessary, to establish the proposition he sought to establish, not merely to show that abuses exist on a substantial enough scale to justify special legislation on a particular point, but that this particular proposal in fact will make a substantial contribution towards dealing with those abuses. That is the proper way that this Committee should look at the matter.
In view of what has been said, and the implication in the new Clause of the inadequacy of. the existing machinery, it might be possible for the Committee to consider what are the existing provisions. In respect of these expenses, as in respect of others, the normal procedure in the vast majority of cases works perfectly satisfactorily. The taxpayer produces to the inspector of taxes in his claim such supporting evidence as he may wish. There is discussion and, in the vast majority of cases, the matter is satisfactorily settled in that way. But if the inspector has the slightest doubt about the bona fides of the claim for allowances, and doubts whether sufficient evidence has been produced to justify it, he has a perfectly simple remedy. He can disallow the claim.
10.45 p.m.
If the inspector does so, the taxpayer has two alternatives. He can accept the disallowance, in which case no further question arises—he has failed to establish the claim and no possible abuse can arise —or, possibly, he can appeal to the Commissioners. At that appeal the onus is upon him to establish the validity of his claim. Evidence can be tendered on oath and documents can be produced. The essence of the matter is that it is up to him in those circumstances to prove his claim. If inadequate material is produced, no doubt the claim will fail.
That seems to be a considerable safeguard. But as the right hon. and learned Gentleman will be well aware, in the very rare cases where real suspicion arises that there is considerable concealment or false claim there remains the provision, with which the right hon. and learned Gentleman is only too familiar, in Section 31 (1) of the Income Tax Act, 1952, under which the books and documents can be called for and inquiry can take place. I do not think that any difficulty can arise about that. The point which this new Clause poses is whether all that machinery is inadequate and whether further machinery is required.
When, last year, we discussed this matter at considerable length in the small hours of the night on a new Clause moved by the hon. Member for Edmonton (Mr. Albu), I undertook, in indicating that we did not feel that we needed these powers, that my right hon. Friend would watch the position carefully and that he would


not hesitate to ask for additional powers if he was satisfied that they were required. The position in that respect remains as it then was. We have watched the matter very closely and we are not convinced that it is necessary to strengthen the machinery of the law in this respect. That is not to say that abuses cannot take place. It is, however, to say that we do not think that the remedy for such abuses is further legal machinery such as this.
The real way in which proper care is kept over public revenues is the devoted and skilled work of the staff of the Inland Revenue. The hon. Member for Sowerby was getting quite close to one of the considerations that affect this matter when he referred to problems of staffing that arise from time to time. But once one accepts that the real enforcement of the law depends upon staffing and the work of the Inland Revenue the case for improving the legal machinery is, naturally, proportionately diminished.
I can, however, say, as I said last year, that we have not the slightest intention of winking at or conniving at abuses in this or any other direction. It seems to me a little disproportionate to focus the argument as to alleged abuses solely on this particular set of allowances which are, financially and relatively, a small part of the Income Tax administration and law. But the point comes back to whether, in order to carry out our duties it is necessary to be armed with these further powers.
When this new Clause was put on the Order Paper we considered as a result of last year's discussion the state of the administration and of the law in this respect. We came to the conclusion that the discharge of our duty to Parliament for the collection of the revenue did not require further powers of this sort. The hon. Member for Sowerby, speaking on behalf of whom I am not quite certain, said he thought that additional powers were needed; but that is not the view of my right hon. Friend, who is responsible to Parliament for the operations of the Inland Revenue authorities, and this is the view after full inquiry.
If widespread abuses take place, then this House is entitled to call my right hon. Friend to account, and if, on consideration, he finds that he needs no such

additional powers, it would be a little unreasonable to force those powers upon him. I assure hon. Members that we shall never fail to seek such additional powers, should they be called for; nor to take the most drastic powers should abuses demand that they be given. But, it would be a little less than fair for us to allow these powers to be forced upon us if we do not feel that it is right to thrust them upon the executive.
I have no quarrel with the tone or content of the speeches which have been made, but we do not feel that there is need for these powers and, therefore, we ought not to seek to take them. I am grateful for the suggestion that such powers should be sought; the answer is we do not require them and, therefore, cannot accept them.

Sir F. Soskice: The Financial Secretary has made a most careful and courteous reply; but may I put it to him that the answer to the main burden of his argument that the powers are not needed is that the abuse exists and, furthermore, is extremely widespread?

Mr. Boyd-Carpenter: First, I do not concede that the abuse is widespread. That it exists I am not concerned to dispute, but the right hon. and learned Gentleman has not applied his mind, if I may say so, to the fact that if the abuse does exist the strengthening of the law in this one particular form for one abuse is not the right way to deal with it; it is our opinion that it is not.

Mr. Mitchison: If Edward Gibbon had ever been a member of this House—as, indeed, I believe he was—and had had to deal with our present system of taxation, he might have dealt with this particular point in language somewhat similar to that which the Financial Secretary has just employed. But what would he have put in afterwards? I listened carefully to the Financial Secretary, and I found that he went through the whole of his speech without dealing with the one point which I believe every hon. Member in the Committee wanted him to deal with, namely, what is the extent of the abuses which, in answer to a question from my right hon. and learned Friend the Member for Neepsend (Sir F. Soskice), he finally admitted did exist? That is the question we should all like to have answered.
As for the whole of the Treasury Ministers keeping their eye on this matter, all I can say is that no doubt they have many eyes, for there are so many matters that they keep an eye on; but whether their eye has been as active and vigorous in this matter as the ordinary common optic of the man in the street is what rather puzzles me.
Surely, if there were no such abuse, if it did not amount to a serious matter, we should have had by now, either from the Treasury Bench or from the benches behind, what we want to hear, if they have the courage to make it—a definite and positive denial that there is widespread abuse in this matter. For a Minister of the Crown to get up and admit that abuses exist, to say that this particular method of dealing with them may be inadequate, and to fail completely to promise to find a better one, or to do anything whatever about the matter, seems to me to be an admission of incapacity on this particular point which one rarely finds in such open and obvious form.
It is quite obvious that, having regard to the rules of this Committee, the powers of the Opposition to make suggestions about expenses and the like are very limited. We cannot, under the rules of order, make suggestions to limit expenses, for by so doing we may increase taxation, and, therefore, the only Clauses we can put down on this matter are bound to be of a somewhat limited type. Frankly, I wish it were in our power to go further into the matter. I should be glad to do it, and when the Labour Government were in power we did do quite a lot. We might, perhaps, have done more, but we did quite a lot in the proper direction, that is to say, to limit and define more accurately the expenses that ought to be allowed.
I agree that we are not on that now, but are on this question: is an affidavit for this purpose of any practical value? If it is of any practical value I agree with those who have said it is not by itself enough. I entirely agree with that. If there is an abuse—and we have had an admission that there is some, at any rate—and if this remedy is of some value, is the Committee to turn it down because it does not do the whole thing, going to turn it down because under the ordinary

rules of procedure we cannot suggest any more from these benches?
I have heard some remarkable things about affidavits tonight. We all know the story of the man in the City who made a point of never reading affidavits before signing them. No doubt it is not true, but, after all, an affidavit is a solemn declaration sworn to by the man who makes it. It is not on the same footing as merely signing a form or anything of that sort, and whether before or after the lunch which the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke) was talking about, I should have thought that any responsible citizen would have had enough decency and enough conscience to consider what he was doing when swearing to a declaration of this sort. Not without reason is the penalty for false swearing in these matters of this kind the penalty for perjury. I think that we in this Committee ought to be slow to make a mock of this kind of matter.
What, it seems to me, we ought to consider is not merely whether or not this is a complete or the best remedy; not merely the extent of the abuse; but what several of my hon. Friends have already said; we must have some regard at any rate to the position and the opinion of the ordinary man in the street whose vote, after all, sent anyone in this Committee to his place. It is perfectly clear what he thinks about it. I think that in this instance he has done what he often does, and has been right.
What he thinks is, that there is widespread abuse of the whole system of expenses and deductions. What he thinks is that he pays Income Tax—I agree that he often exaggerates the amount which he pays—but he is right on one point, that when he pays there is no deduction of this kind open to him. He goes into the centre of large towns and sees expenditure on a scale which he thinks is incompatible with its being personal expenditure paid out of income.
11.0 p.m.
We do not mind what kind of dinner anyone has, within reason. What we do insist on, so far as this Clause, and these precautions, go, is that a person should not have it at the expense of other taxpayers. We are told that the country has only just been saved from a financial


crisis. I think there is a lot of nonsense about that, but it is said frequently by hon. Gentlemen opposite. We are told that expenditure on this, that and the other must be cut, and after they have more or less cut the throat of teaching, and probably of the Minister of Education in the process, when it comes to what may well be a widespread abuse we are to recognise its existence and do nothing about it.
I say to the Chancellor of the Exchequer, and to other right hon. Gentlemen on the Front Bench opposite, that if they do not think that this Clause is adequate, it is for them to find something which does more, and does it better. If they think that the abuse is not widespread they have not merely to convince us, but the ordinary man in the street who has no right to make these deductions from the Income Tax which he pays. It is that man, and his wife, whom they have to convince that there is no such abuse as we believe to exist. They have to convince him, also, that it does not make an appreciable hole in the revenue which is as unfair to other taxpayers as it is inconsistent with proper economy in the running of the country.

Hon. Members: Divide.

Mr. Gaitskell: I must say to hon. Members opposite that if they do not behave hon. Members on this side of the Committee will continue the discussion much longer. I am surprised that hon. Members opposite have not taken a closer interest in the proceedings. This is a matter of the greatest importance, I would have thought, to everyone in the Committee and in the country. I had not intended to speak at this stage, and I do not want it to be assumed because I am speaking now that others who have contributions which they wish to make should not make them.
There are certain things which must be said after the speech of the Financial Secretary. There is no doubt that there is a serious problem here. I had no doubt about it when I was Chancellor of the Exchequer. I wish I had been able to do more about it during the year of my Chancellorship. I had begun to investigate the problem, and in the Finance Bill of 1951 we introduced a number of measures against tax evasion, though, unfortunately, not one dealing effectively with this problem.
There is a problem for two reasons. It cannot be denied that the position of different taxpayers is very different when it comes to claiming entertainment expenses. Even the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke) admitted that though, with gay abandon, he suggested that the solution was to let everyone claim expenses freely on the same basis. That is no doubt an attractive proposition to him. He believes that we, in seeking to close loopholes in the law, were making life disagreeable for everyone. One can see that his idea of an agreeable life is running through loopholes in the law wherever he can.
That is a point of view, but I do not know whether his constituents in Dorset, South with whom he had a little trouble recently, will take quite the same view as the noble Lord does on that point. The fact is that however attractive the picture may be of allowing everyone to run through loopholes in the law, that is not possible because there are a large number of people who would not and could not benefit even if Schedules D and E were dealt with on the same basis.
I think it is a serious problem because it is well known that it is a serious abuse. It is well known all over the country that quite a large number of people do, in fact, manage to increase their real income substantially at the expense of the Exchequer—in other words, by not paying tax as they should. That is deeply resented by, I would say, millions of people who have no opportunity, even if they wanted to do so, of evading taxation in this way, whose tax is deducted week by week in the ordinary way and who see other people getting away with it.
I was very surprised when the Financial Secretary appeared to deny that there was anything more than an abuse here and there—occasional abuses was I think about as far as he would go. I think there is widespread abuse and I am surprised that the Government are not taking the matter far more seriously.
There is another consequence of this. The Chancellor, I think, is still in favour of a policy of wage restraint and attaches some importance to that. We would not wish to go into that question in detail, but I submit to him that failure to deal with this particular abuse is one of the


things that has got to be borne in mind. When people see extravagant living which they know cannot be out of income but guess, probably correctly, that if it is not out of capital—which is a different matter, although in my view also a serious matter —but really out of expenses, it will not make them very well disposed towards a policy of wage restraint. If the Chancellor is serious about this it will not do to pooh-pooh the existence of this abuse and say that there is really nothing to worry about at all.
It is not easy to find a solution; we are very well aware of that. It is particularly difficult for the Opposition to draft an Amendment or new Clause within the rules of order to deal with this matter. I think that my right hon. and learned Friend is to be congratulated in having put forward what is at least a serious proposition. It has been said that it will not make any substantial difference—the powers already exist—but I think my right hon. and learned Friend has given the answer to the Financial Secretary there. If the powers already exist, why does the abuse exist to the extent that it does?
The Financial Secretary may take the view that this would make no difference, but I would venture to differ from him on that. A really significant effect of this new Clause would be the deterrent effect it would have on persons who seek to evade taxation in this way. Even if it is true that the Clause is not perfect and would not be as effective as we think, if the abuse exists—and some abuse exists —it is up to the Government to tackle the matter in whatever way they think proper.
So far, we have had from the Government very little sign that they appreciate the seriousness of the problem. I have been shocked at the attitude of hon. Gentlemen opposite. Perhaps I should not have been shocked or, at any rate, I should not have been surprised, because it was reminiscent of their attitude throughout the 1951 Finance Bill. Hour after hour they did their best to prevent the carrying through of a Bill containing so many measures to prevent tax evasion. We can see the same sort of thing coming up again tonight. While they may feel it is a matter of no importance and that the business man may

spend what he likes, I can assure them the country does not feel in the least like that.
If the Government think that is the way to gain popular support they are riding for a very heavy fall indeed. I hope that they have a better answer than the one they have already given. If we cannot get the matter more seriously considered we shall have no option but to divide the Committee.

Mr. R. A. Butler: I would not have risen in this debate but for the speech of the right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell). I hope that we may shortly take this matter to a Division, because our consciences are clear. We do not accept the statement that he has made.
The position about the Clause is that it was debated for 37 columns of HANSARD on 28th May last year, and we are repeating this year almost exactly the same debate as last year. As far as I am concerned, if the Chair allows it I am ready to repeat the same debate next year, and to give the same arguments there on the same subject.
I do not deny the seriousness of the subject. The right hon. Gentleman said that there were people on this side of the Committee who want to run loopholes through the law. That is quite untrue.

Mr. Gaitskell: I only want to assure the right hon. Gentleman, who was not here when the noble Lord the Member for Dorset, South (Viscount Hinching-brooke) made his speech, that he used precisely the words I quoted.

Mr. Butler: I am not the keeper of the conscience of the right hon. Gentleman opposite or my hon. Friend on this side, but I know enough about the noble Lord to know he respects the law quite as much as the right hon. Gentleman opposite, and that his career, although it may have apparent ideosyncrasies, is just as honourable in respect of the law as any hon. Gentleman on the other side. I would certainly stand by my noble Friend on a matter of the law or public morality at any time of the day or night.
The next observation of the right hon. Gentleman was that there was serious abuse—widespread abuse—and that millions of people were concerned about the evasion of taxation in this respect,


I really do not know upon what evidence the right hon. Gentleman bases this ex-cathedra statement. It is a dangerous thing to put about to the British public even at this time of night, when our debates are still reported, that there is widespread abuse in this direction. After all, I should be in a position to know something about it. I will confess that this is a perfectly serious matter and that there is abuse, but to say it is widespread abuse is an exaggeration, and I beseech the right hon. Gentleman not to carry this into the realm of wage restraint.
We really have too serious a problem in the interests of production, the export trade and economic policy to give the impression—and I appeal to the hon. Member for Sowerby (Mr. Houghton), too —that the Inland Revenue and their officials are allowing widespread abuse to exist. I deny it. I do not think that any Chancellor—even the right hon. Gentleman, with all his experience and ability—would be able to know exactly what happens every day under the control of the Inland Revenue, but I do know that I am the Minister responsible to the House of Commons, and I know from my contact with the Revenue, which is almost daily, that there has been difficulty in this respect. I know that the Revenue are anxious to see that there is no further abuse.
11.15 p.m.
The question therefore arises whether the powers which we have are sufficient. The right hon. Gentleman apparently felt that the case put forward by the Government was not put seriously enough by the Financial Secretary, but I thought that my hon. Friend's speech was one of the most competent I have heard recently. It put the case absolutely clearly, it put clearly the powers we have and the defects in the new Clause, it put the whole problem; and my hon. Friend gave the assurance that the Government intend to see that we use our powers in the best possible way and to deal with the abuse.
If the right hon. Gentleman wants a further assurance from me—and this is not because the case put by the Financial Secretary was deficient, because I do not think it was—then, if I can lend my authority as Chancellor of the Exchequer, I will say that this matter has come to my attention, that there are cases of

abuse, and that in so far as there are cases of abuse I propose that they shall be dealt with rigorously by the Revenue. I say that to reassure the right hon. Gentleman and those in the ranks of organised labour elsewhere and to show that we are not taking this lightly and that we are following up our statement of last year that the Government are watching the situation.
Now we come to the positive issue— shall we or shall we not accept the new Clause? I think that the weakness of the new Clause is precisely this: if new inquisitorial powers are necessary, why limit their scope to this sole purpose of entertainment expenses? We believe that if we are to demand new powers, they should be wider than this and should deal with all other kinds of expenses which likewise operate to diminish assessable income. Why move a Clause of this sort simply to deal with entertainment expenses?
I must say frankly to the Committee that I believe this Clause, and Clauses like it, moved year after year, are moved because they present to the public a very agreeable picture that rich capitalists are indulging in entertainment expenses while a dull Conservative Chancellor of the Exchequer and the Revenue do nothing whatever about it. That is why they are moved. They are moved to give an agreeable political atmosphere to the actions of the right hon. Gentleman and his hon. Friends, and, frankly, this Government will not rise to that sort of thing.
We are just as much against evasion of the law and a false use of entertainment expenses as right hon. and hon. Gentlemen opposite, and I give this pledge to the public as well as to the Committee: if there is abuse it will certainly be followed up by the Revenue. I would remind the right hon. Gentleman of what the Financial Secretary said—and this is a technical point—that Section 31 (1) of the Income Tax Act, 1952, would extend in cases of suspected fraud or wilful default to the need to produce, for inspection by a Revenue officer, all business books, accounts and documents containing information about trading transactions. That will cover any entertainment expenses abuse and would also cover the other abuses to which I have referred.
I give this to the Committee to show that we are as honourable as all hon. Members who have taken part in this debate. We are perfectly ready and, indeed, determined to use those powers if they are necessary. I hope, in view of that, that the right hon. Gentleman and the right hon. and learned Member for

Neepsend (Sir F. Soskice) will realise that we are as sincere as they are, that we do not wish to see abuse and that we have the powers to deal with it.

Question put, "That the Clause be read a Second time."

The Committee divided: Ayes, 164; Noes, 189.

Division No. 198.]
AYES
[11.20 p.m.


Acland, Sir Richard
Hall, John T. (Gateshead, W.)
Reid, Thomas (Swindon)


Albu, A. H.
Hannan, W.
Rhodes, H.


Allen, Scholefield (Crewe)
Hargreaves, A.
Roberts, Albert (Normanton)


Awbery, S. S.
Harrison, J. (Nottingham, E.)
Roberts, Goronwy (Caernarvon)


Baird, J.
Hayman, F. H.
Robinson, Kenneth (St. Pancras, N.)


Bartley, P.
Henderson, Rt. Hon. A. (Rowley Regis)
Rogers, George (Kensington, N.)


Bellenger, Rt. Hon. F. J.
Hobson, C. R.
Royle, C.


Benn, Hon. Wedgwood
Holman, P.
Shackleton, E. A. A.


Beswick, F.
Houghton, Douglas
Shawcross, Rt. Hon. Sir Hartley


Bing, G. H. C.
Hudson, James (Ealing, N.)
Short, E. W.


Blackburn, F.
Irvine, A. J. (Edge Hill)
Shurmer, P. L. E.


Blenkinsop, A.
Jay, Rt. Hon. D. P. T.
Silverman, Julius (Erdington)


Blyton, W. R.
Jenkins, R. H. (Stechford)
Simmons, C. J. (Brierley Hill)


Boardman, H.
Johnson, James (Rugby)
Skeffington, A. M.


Bowles, F. G.
Jones, David (Hartlepool)
Slater, Mrs. H. (Stoke-on-Trent)


Braddock, Mrs. Elizabeth
Jones, Jack (Rotherham)
Slater, J. (Durham, Sedgefield)


Brockway, A. F.
Jones, T. W. (Merioneth)
Smith, Ellis (Stoke, S.)


Broughton, Dr. A. D. D.
Keenan, W.
Snow, J. W.


Brown, Thomas (Ince)
Kenyon, C.
Sorensen, R. W.


Burke, W. A.
King, Dr. H. M.
Soskice, Rt. Hon. Sir Frank


Callaghan, L. J.
Lee, Frederick (Newton)
Sparks, J. A.


Champion, A. J.
Lever, Leslie (Ardwick)
Stewart, Michael (Fulham, E.)


Coldrick, W.
Lewis, Arthur
Strauss, Rt. Hon. George (Vauxhall)


Corbet, Mrs. Freda
MacColl, J. E.
Stress, Dr. Barnett


Craddock, George (Bradford, S.)
McGhee, H. G.
Sylvester, G. O.


Crosland, C. A. R.
Mallalieu, E. L. (Brigg)
Taylor, Bernard (Mansfield)


Crossman, R. H. S.
Mallalieu, J. P. W. (Huddersfield, E.)
Taylor, John (West Lothian)


Dalton, Rt. Hon. H.
Mason, Roy
Taylor, Rt. Hon. Robert (Morpeth)


Davies, Ernest (Enfield, E.)
Mayhew, C. P
Thomas, David (Aberdare)


Davies, Stephen (Merthyr)
Mikardo, Ian
Thomas, George (Cardiff)


Delargy, H. J.
Mitchison, G. R.
Thomas, lorwerth (Rhondda, W.)


Dodds, N. N.
Monslow, W.
Thornton, E.


Donnelly, D. L.
Moody, A. S.
Tomney, F.


Ede, Rt. Hon. J. C.
Morgan, Dr. H. B. W.
Ungoed-Thomas, Sir Lynn


Edelman, M.
Morley, R.
Usborne, H. C.


Edwards, Rt. Hon. John (Brighouse)
Morris, Percy (Swansea, W.)
Weitzman, D.


Edwards, W. J. (Stepney)
Moyle, A.
Wells, William (Watsall)


Evans, Albert (Islington, S.W.)
Mulley, F. W.
West, D. G.


Evans, Stanley (Wednesbury)
Murray, J. D.
Wheeldon, W. E.


Fernyhough, E.
Nally, W.
While, Henry (Derbyshire, N.E.)


Fienburgh, W.
Neal, Harold (Bolsover)
Whiteley, Rt. Hon. W.


Finch, H. J.
Noel-Baker, Rl. Hon. P. J.
Wigg, George


Fletcher, Eric (Islington, E.)
Oliver, G. H.
Wilcock, Group Capt. C. A. B.


Foot, M. M.
Orbach, M.
Willey, F. T.


Fraser, Thomas (Hamilton)
Padley, W. E.
Williams, Rev. Llywelyn (Abertillery)


Freeman, Peter (Newport)
Paling, Rt. Hon. W. (Dearne Valley)
Williams, Ronald (Wigan)


Gaitskell, Rt. Hon. H. T. N.
Paling, Will T. (Dewsbury)
Williams, W. R. (Droylsden)


Gibson C. W.
Palmer, A. M. F.
Winterbottom, Ian (Nottingham, C.)


Glanville, James
Pannell, Charles
Winterbottom, Richard (Brightside)


Gordon-Walker, Rt. Hon. P. C.
Pargiter, G. A.
Wyatt, W. L.


Greenwood, Anthony (Rossendale)
Parker, J.
Yates, V. F.


Grenfell, Rt. Hon. D. R.
Pearson, A.
Younger, Rt. Hon. K.


Grey, C. F.
Peart, T. F.



Griffiths, Rt. Hon. James (Llanelly)
Price, Joseph T. (Westhoughton)
TELLERS FOR THE AYES:


Hale, Leslie
Price, Phillips (Gloucestershire, W.)
Mr. Popplewell and Mr. Wilkins.


Hall, Rt. Hon. Glenvil (Colne Valley)
Proctor, W. T.





NOES


Aitken, W. T.
Barlow, Sir John
Boyle, Sir Edward


Allan, R. A. (Paddington, S.)
Baxter, A. B.
Braithwaile, Sir Albert (Harrow, W.)


Alport C. J. M.
Beach, Maj. Hicks
Braithwaite, Lt.-Cdr. G. (Bristol, N.W.)


Arbuthnot, John
Bell, Philip (Bolton, E.)
Bromley-Davenport, Lt.-Col. W. H.


Ashton, H. (Chelmsford)
Bennett, F. M. (Reading, N.)
Brooke, Henry (Hampstead)


Assheton, Rt. Hon. R. (Blackburn, W.)
Birch, Nigel
Buchan-Hepburn, Rt. Hon. P. G. T.


Baldock, Lt.-Cmdr. J. M.
Black, C. W.
Bullard, D. G.


Baldwin, A. E.
Bossom, Sir A. C.
Bullus, Wing Commander E. E.


Banks Col. C.
Bowen, E. R.
Burden, F. F. A.


Barber, Anthony
Boyd-Carpenter, J. A.
Butler, Rt. Hon. R. A. (Saffron Walden)




Campbell, Sir David
Hudson, W. R. A. (Hull, N.)
Price, Henry (Lwisham, W.)


Carr, Robert
Hulbert, Wing. Cdr. N. J.
Profumo, J. D.


Cary, Sir Robert
Hurd, A. R.
Raikes, Sir Victor


Channon, H.
Hutchinson, Sir Geoffrey (Ilford, N.)
Rayner, Brig. R.


Clarke, Col. Ralph (East Grinstead)
Hyiton-Foster, H. B. H.
Redmayne, M.


Clarke, Brig. Terence (Portsmouth, W.)
Jenkins, Robert (Dulwich)
Rees-Davies, W. R.


Cole, Norman
Johnson, Eric (Blackley)
Renton, D. L. M.


Conant, Maj. R. J. E.
Johnson, Howard (Kemptown)
Roberts, Peter (Heeley)


Craddock, Beresford (Spelthorne)
Joynson-Hicks, Hon. L. W.
Robinson, Roland (Blackpool, S.)


Crookshank, Capt. Rt. Hon. H. F. C.
Kaberry, D.
Roper, Sir Harold


Crosthwaite-Eyre, Col. O. E.
Keeling, Sir Edward
Ropner, Col. Sir Leonard


Crouch, R. F.
Kerr, H. W.
Russell, R. S.


Crowder, Petre (Ruislip—Northwood)
Lambert, Hon. G.
Ryder, Capt. R. E. D.


Deedes, W. F.
Lancaster, Col. C. G.
Salter, Rt Hon. Sir Arthur


Digby, S. Wingfield
Law, Rt. Hon. R. K.
Sandys, Rt. Hon. D.


Dodds-Parker, A. D.
Legge-Bourke, Maj. E. A. H.
Scott, R. Donald


Donner, Sir P. W.
Legh, Hon. Peter (Petersfield)
Scott-Miller, Cmdr. R.


Erroll, F. J.
Linstead, Sir H. N.
Simon, J. E. S. (Middlesbrough, W.)


Fell, A.
Lockwood, Lt.-Col. J. C.
Smithers, Sir Waldron (Orpington)


Finlay, Graeme
Low, A. R. W.
Soames, Capt. C.


Fisher, Nigel
Lucas, Sir Jocelyn (Portsmouth, S.)
Spearman, A. C. M.


Fleetwood-Hesketh, R. F.
Lucas-Tooth, Sir Hugh
Stevens, G. P.


Fletcher-Cooke, C.
Macdonald, Sir Peter
Steward, W. A. (Woolwich, W.)


Ford, Mrs. Patricia
Mackie, J. H. (Galloway)
Stoddart-Scott, Col. M.


Foster, John
Maclean, Fitzroy
Strauss, Henry (Norwich, S.)


Fraser, Hon. Hugh (Stone)
Maoleod, Rt. Hon. Lain (Enfield, W.)
Studholme H. G


Fraser, Sir Ian (Morecambe &amp; Lonsdale)
Maitland, Comdr. J. F. W. (Horncastle)
Summers G. S.


George, Rt. Hon Maj. G. Lloyd
Manningham-Buller, Sir R. E.
Sutclife, Sir Harold


Gough, C. F. H.
Markham Major Sir S. F.
Taylor Charles (Eastbourne)


Gower, H. R.
Marlowe, A. A. H.
Taylor, William (Bradford, N.)


Graham Sir Fergus
Marples, A. E.
Thomas, Leslie (Canterbury)


Grimond, J.
Marshall, Douglas (Bodmin)
Thompson, Lt.-Cdr. R. (Croydon, W.)


Grimston, Hon John (St. Albans)
Maude, Angus
Turner, H. F. L.


Gromston, Sir Robert (Westbury)
Maudling, R.
Turton, R. H.


Hall, John (Wycombe)
Maydon, Lt.-Comdr. S. L. C.
Vane, W. M. F.


Harden,J. R. E.
Medlicott, Brig. F.
Vaughan-Morgan, J. K.


Hare, Hon. J. H.
Mellor, Sir John
Wakefield, Edward (Derbyshire, W.)


Harri. Fredric (Croydon, N.)
Molson, A.H. E.
Wakefield, Sir Wavell (St. Marylebone)


Ha son Col. J. H. (Eye)
Nabarro, G. D. N.
Ward, Hon. George (Worcester)


Harvey Air Cdre A. V. (Macclesfield)




Harvey Ian (Harrow, E.)
Nicholson, Godfrey (Farnham)
Ward, Miss I. (Tynemouth)


Hay John
Nicolson, Nigel (Bournamouth, E.)
Waterhouse, Capt. Rt. Hon. C.


Heal'd Sir Lionel
Nield, Basil (Chester)
Webbe, Sir H. (London &amp; Westminster)


Heath, Edward
Nutting, Anthony
Williams, Gerald (Tonbridge)


Higgs, J. M. C.
Oakshott, H. D.
Williams, Sir Herbert (Croydon, E.)


Hill, Dr. Charles (Luton)
O'Neill, Phelim (Co. Antrim, N.)
Williams, Paul (Sunderland, S.)


Hill, Mrs. E. (Wythenshawe)
Ormsby-Gore, Hon. W. D.
Williams, R. Dudley (Exeter)


Hinchingbrooke, Viscount
Osborne, C.
Wills, G.


Hirst, Geoffrey
Partridge, E.
Wilson, Geoffrey (Truro)


Holland-Martin, C. J.
Perkins, W. R. D.
Wood, Hon. R.


Hornsby-Smith, Miss M. P.
Peto, Brig. C. H. M.
York, C.


Horobin, I. M.
Pickthorn, K. W. M.



Howard, Gerald (Cambridgeshire)
Pilkington, Capt. R. A.
TELLERS FOR THE NOES:


Howard, Hon. Greville (St. Ives)
Pitman, I. J.
Sir Herbert Butcher and


Hudson, Sir Austin (Lewisham, N.)
Powell, J. Enoch
Sir Cedric Drewe.

New Clause.—(AMENDMENT OF INCOME TAX ACT, 1952, s. 101, TO INCLUDE APPROVED DOMESTIC SOLID FUEL APPLIANCES.)

In section one hundred and one of the Income Tax Act, 1952, there shall be inserted after subsection (1) the following subsection:
1(A). For the purposes of this section 'maintenance' shall include the purchase and installation of a domestic solid fuel appliance of a type certified by the Minister of Fuel and Power as reaching a prescribed standard of fuel efficiency."—[Mr. Crosland.]

Brought up, and read the First time.

Mr. Anthony Crosland: I beg to move, "That the Clause be read a Second time."
This new Clause has as its object an amendment of the Schedule A provisions of the Income Tax Acts, its purpose being that we should allow expenditure

incurred on the purchase and installation of approved solid fuel appliances to be offset against Schedule A tax payments. It seeks to do this by so defining the word "maintenance" in the Schedule A provisions of the Income Tax Acts as to include expenditure incurred on such approved appliances.
We submit this new Clause in order to follow up the recommendations of the Ridley Committee. Hon. Members who are concerned with this subject will remember that the Ridley Committee discussed in some detail the financial assistance which might be given to encourage people to instal solid fuel appliances in their homes, and, among the recommendations in paragraph 150 on page 37 of the Ridley Report, there are two—(a) and (b)—which urge that consideration should be given to conces-


sions in Schedule A of the kind which this Clause seeks to provide.
11.30 p.m.
The present position so far as Schedule A and the installation of these appliances is concerned is rather obscure. The hon. Member for Kidderminster (Mr. Nabarro), earlier this year, asked the Chancellor why it was that some tax inspectors allowed such expenditure against Schedule A and others did not. The Chancellor gave an answer defining the conditions under which expenditure could be set against Schedule A, and it is clear from that answer that only a very small proportion of such appliances when they are installed are now eligible for the relief which, in this new Clause, we seek to make general.
The case for encouraging the installation of these appliances is by now well known and generally accepted. About a third—over 60 million tons—of our coal supplies is consumed either directly or indirectly in the home. Any discussion of fuel efficiency in the home is thus clearly a discussion of a matter which is quantitatively important. I think it could be agreed that there are three very important advantages which would follow if such appliances were generally installed in the homes of Great Britain.
The first advantage is that it will lead to the saving of some coal. This is not a point on which there is general agreement. Everyone agrees that the thermal efficiency of these appliances is very much greater than the appliances they would be likely to replace, but it is commonly argued that, in spite of this fact, there would be no saving of coal following their installation on a wide scale because the extra efficiency would be taken up in extra warmth, extra comfort, and a higher standard of living.
Even after the installation of these appliances, it is argued, people would consume the same amount of coal as in open grates and the only consequence would be that they would be warmer and more comfortable. So much the better. That is a desirable end in itself, but it seems to me most unlikely that their general installation would not save some coal. I cannot believe that those who install these appliances, and get so much extra efficiency and greater comfort, will not spend less money on coal.

People will spend some of their potential saving on other things, and burn less coal.

Mr. Peter Roberts: Would the hon. Gentleman not agree that the appliances would not only save coal, but their users would be able to burn breeze, slack and small coke, which would replace the coal and would be a saving as well?

Mr. Crosland: That is certainly an important incidental advantage.
I should like to try to establish the fact, which is often denied, that it would save some coal in overall terms. I support my contention by a very interesting sentence in this year's report of the National Coal Board. In page 35, paragraph 124 of their annual report, they say:
Merchants' sales of coal to domestic consumers were lower than in 1951. This may have been due in part to consumers running down their stocks and in part to the use of more efficient heating appliances.
So the Coal Board take the view that the installation of more efficient heating appliances will save coal even if part of the extra efficiency goes in increased comfort, increased heat and an improved standard of living. It is, therefore, very hard to deny that no saving of coal will occur.
In the sort of coal situation that we are likely to have in this country for about 10 years ahead even a small saving of coal might be important and might make the difference in future between having and not having a fuel crisis. So it is not enough to dismiss this case on the ground that the proposal will save no coal or will only save a small amount.
The second advantage is the great improvement in the abatement of smoke pollution which would result. One of the most desirable consequences of installing these appliances more widely is that we should have far less smoke in our cities. In terms of health that is a very important thing which is in everybody's mind as a result of having a winter with a particularly bad fog which caused a very large number of deaths. In addition, the cost of combating the effects of pollution is enormous. If we had a system of domestic heating which caused less pollution there would be a considerable saving in measures required to deal with smoke pollution at the present time.
A third important consequence would be a saving in terms of capital cost where these appliances replace electric fires and other electric domestic equipment. If electric fires and all domestic electric equipment were used only at other than peak hours this would not be a very strong or significant argument. But a proportion of them is used at peak hours, not only in all-electric houses but even in houses which have open grates, where it is very common for electric fires to be used at the early morning peak hours before the fire has been lit for the day.
Where electric fires or other equipment are used at peak hours the capital cost to the country of having electric appliances in the home is obviously enormous. It leads to capital expenditure of a serious nature and enormous magnitude on generating plant. A general switch-over from electric equipment to solid fuel burning appliances in the home might mean a very great saving in terms of capital cost in the electricity investment programme.
It would be possible to maintain quite seriously that, taking into account these three possible forms of saving—and others can be adduced—a direct saving of coal, a saving on expenditure in combating smoke pollution and a saving on capital cost in electricity investment, it would pay the Government or the community to give away solid fuel appliances free. The cost would be a great deal less than the value of the resources saved in terms of coal, smoke pollution and investment programmes.
It may well be said that even though this case is an undeniable one and we ought to encourage the installation of these appliances one must ask why a special incentive of any kind is needed, because I do not think that any householder who has installed one of these appliances would deny that there is a saving to his or her purse. Why, then, is a special incentive needed?
Almost everybody who has discussed this topic, or who has written about it. agrees that some special incentive is needed if the appliances are to be installed in large numbers; and the Ridley Report is quite clear in its claim that they will not be installed on a sufficiently wide scale without incentive. In paragraph 150, the Report lists a number of

financial incentives which should be given, and among those is the incentive that we are discussing this evening.
Furthermore, the Coal Utilisation Council has a view on the subject in its survey into the domestic use of solid fuel and solid fuel appliances in Great Britain. On page 25 of the survey, it is stated, in discussing why these appliances are not installed more widely, that one of the reasons is cost. It states that that is an important factor operating against each appliance, and is mentioned by roughly one person in four willing to consider installing a modern appliance. It is hardly surprising that this is something of a deterrent because the more efficient of these fires cost a substantial sum, and the actual installation may cost as much as the appliance itself.
That is why we have moved this Clause tonight; and, speaking of the actual clause, it may be asked why we say:
… certified by the Minister of Fuel and Power….
We should have liked a more definite phrase, but there is difficulty here. The phrase "approved appliances" is considered to be much too broad, and among such would be those whose efficiency is not too great. We were tempted to define the appliances by saying whether they fulfilled one function or more, and should have liked to have confined the concession to dual or triple purpose appliances; but we have used the phrase which appears in the proposed Clause, which carries with it the need for the Ministry of Fuel and Power to produce a narrower definition of appliances to be approved, which is what the Ridley Report suggests.
I appeal to the Chancellor to consider this Clause most carefully, for there is nothing else in the Budget to encourage domestic fuel economy. Indeed, the right hon. Gentleman has given a sort of negative incentive in the form of Purchase Tax reduction on electric fires. That is something pulling in the wrong direction. Little has been done to carry out the recommendations of the Ridley Report. The Chancellor has made a small concession on industrial fuel appliances, and, despite the obvious difficulties, I appeal to him to make a concession tonight for domestic appliances.

Mr. Gerald Nabarro: I would not disagree with any of the principles which the hon. Member for Gloucestershire, South (Mr. Crosland) has just enunciated in his remarks, and I rise at this late hour only to make one or two observations, particularly from the fiscal point of view.
There was one omission from the speech to which we have just listened in regard to stimulating a greater flow of these modern solid fuel appliances to the domestic market; and that is, that in every year which goes by, we suffer more and more difficulty in meeting the specialised demand of the house coal market. It demands large coal, and every year that passes the seams in our pits are tending to become more remote from the bottom of the shaft, they are often becoming thinner and dirtier, and what we have been accustomed to in the form of large, clean house coal is no longer always a practicable possibility; at least, not on the scale and to the standards which we enjoyed in pre-war years. These modern solid fuel burning appliances generally burn smaller coal, and coal of a lesser quality.
It is important as mechanisation of the pits steadily proceeds—and it is reaching, I must say, almost saturation point now— that the complementary factor should be carried in mind, and that is that these appliances in our homes should be installed upon as widespread a scale as possible. The domestic market is starved of coal. In the South of England only 34 cwt. a year is allowed; in the North of England only 50 cwt.; and the Coal Utilisation Council Report, from which the hon. Gentleman quoted, draws attention to the fact that were there a free market in coal there would be a considerably enhanced demand.
11.45 p.m.
There are several great difficulties in tackling the matter in the way the hon. Gentleman suggests. As I am sure he has not omitted to notice, a Parliamentary Question to the Chancellor of the Exchequer on this matter was asked in April last year. It made the very point to which the new Clause is directed. On that occasion I asked the Chancellor:
Whether he is aware that certain of Her Majesty's inspectors of taxes admit as a permissible charge for purposes of calculating liability to Schedule A Income Tax main-

tenance allowances, the cost of purchase and installation by householders of modern approved solid fuel burning appliances when fitted as replacements for old grates whereas other inspectors of taxes do not so admit the charge; and whether, in the interests of solid fuel conservation he will instruct the Inland Revenue to admit such charges in all instances as a permissible item of cost when calculating liability to Schedule A tax.
That is precisely the purpose of this new Clause. The Chancellor's reply was rather illuminating, because since that date I have carried out a good deal of research as to whether his reply—with great respect to him—was strictly accurate. This is what my right hon. Friend said:
The admissibility of the cost of these appliances in a maintenance claim depends on the facts of the case. If the new appliance and the appliance it replaces are both part of the building the cost of replacement is admitted in so far as it does not exceed the cost of repairing or renewing the old appliance. Any excess is, in law, inadmissible as maintenance, as is the cost of appliances that are not part of the building."—[OFFICIAL REPORT, 8th April, 1952; Vol. 498, c. 199.]
That is really the reply to this new Clause.
My researches in the matter covered nine sample cases taken from all parts of the United Kingdom, and this is what I discovered, after consulting chartered accountants who had had negotiations with various inspectors of taxes. In three cases the inspector admitted the whole cost of installation of the modern solid fuel burning appliance and the structural cost of altering the building as a charge for purpose of the maintenance claim under Schedule A. In three other cases the inspectors, in different parts of the country, completely disallowed the claim. They would have nothing to do with it. In the other three cases they went exactly half-way and admitted the structural alteration of the building only, but not the cost of the new appliance.
I have said enough to demonstrate, I think, that what is wanted is not new legislation on this subject, not further Clauses added to the Finance Bill, but a request from the Chancellor of the Exchequer to the Inland Revenue that there shall be consistency throughout all branches of the Inland Revenue, in their treatment of modern solid fuel burning appliances for this particular class of relief, under Schedule A maintenance.
I think it would be a dangerous precedent indeed if we added a Clause to the Bill on this particular point, because it would lead in future years to similar Clauses being added to Finance Bills covering a whole range of other items coming within the general description of domestic hereditaments or private dwellings. I have always advocated Schedule A relief as an incentive, in the way the Ridley Committee recommended, to get these modern appliances installed in large numbers; but the real way to get that incentive is to persuade the Inland Revenue to be consistent and apply in all cases what they have applied in the three successful sample cases, out of nine, which I have mentioned.
I hope that my right hon. Friend will resist this new Clause but will, by administrative action, instruct the Inland Revenue to show a greater degree of consistency.

Mr. Edward Shackleton: I am sure that no hon. Member would express surprise at the research which the hon. Member for Kidderminster (Mr. Nabarro) has made into a subject in which he is so interested. I ought, perhaps, to declare a personal interest, because I have recently acquired one of the solid fuel high efficiency boilers, and I am wondering if one of the inspectors of taxes who takes a favourable view is the one in Ty Glas Road, Cardiff.
The point I want to make on this subject, in the hope of getting a favourable reply from the Economic Secretary, is that provision can be made without a shadow of doubt for allowances such as are proposed in the new Clause so that people will be certain, and will be encouraged to instal apparatus of this type.
It never does any harm, whatever the hour, to discuss fuel economy. It is a subject on which public education has still a great deal further to go. The hon. Member who moved this new Clause said that there is some dispute whether these new types of apparatus are likely to lead to real fuel saving. From personal knowledge of my Agamatic I can say that they do. The evidence in the Ridley Report, and in the earlier Simon Report, makes clear that real saving can be obtained.
It is worth noting that the 40,000,000 tons of solid fuel burned in houses are responsible for half of the smoke pollution. It is most objectionable pollution, because there is more tarry substance in the domestic smoke than in other smoke. The problem of sulphur, into which I do not intend to enter, is more complicated. It is clear that there will also be some reduction of sulphur in the atmosphere through using the new types of appliance.
Many people feel that the Ridley Report was a poor document, and that it did not go far enough; but it has been made worse by the failure of the Government—and I am not trying to make a political point—in this matter. It really must try to give more of a lead. The Simon Committee recommended subsidisation of these appliances. I realise the difficulty of doing this, and that there are real objections to the introduction of a subsidy in this field; but something fairly strong is needed. The proposal in this Clause is not very revolutionary, and it will give some encouragement to many who are working to solve this problem, and who are depressed by the lack of a positive lead by the Government.
On the question of the difficulty of defining the efficiency of these new types of stove, there is in this country elaborate equipment for establishing standards. We have Dr. Parker, at the Fuel Research Station, and men like Hales, Gunn, and Dr. Townend working continually on this problem at the British Coal Utilisation Research Association. I urge the Government to give a lead tonight, if possible by accepting this new Clause and, if not, by clarifying the position along the lines which the hon. Member for Kidderminster proposed. In the installation of high efficiency plant which will produce better combustion—it is improved combustion that will give greater fuel efficiency—there must be a greater attention paid by builders and others to the installation of more efficient plumbing, including more efficient water boilers. I hope that we shall have a favourable indication of the Government's view on this matter tonight.

Mr. Philip Noel-Baker: I want to support what has been said by my hon. Friends. I think they have made an unanswerable case. We feel very strongly about this matter. We do not propose to


divide the Committee, but we shall certainly take the opportunity of returning to the question on some other occasion. We think it of the utmost national importance that the Chancellor should do everything in his power to secure investment by the nation for the conservation of coal as well as investment through the National Coal Board for the production of coal.
My hon. Friend spoke of smoke pollution. It has been estimated by Dr. Parker and other scientists that the cost to the nation—which, of course, does not appear in the accounts with which the Chancellor has to deal—is £50 million a year. Most of it is due to house smoke, or in any case a large proportion. The Pilkington Report said that the potential saving to be made by industry, which was discussed the other night, was 9 million tons a year. I think the Report came out since the debate. That is over £60 million a year on our balance of payment accounts. Yet the Chancellor could not find it in his heart to make available to industry the loans for fuel-saving equipment at the favourable rates of interest which the Ridley and Pilkington Committees both recommended.
I hope that the Chancellor will do better over domestic coal. In their Report, the Ridley Committee say that it is in house coal appliances that an improvement in efficiency will be most rewarding since house coal is the fuel most commonly used by householders and is mostly used in old-fashioned appliances or relatively low efficiency. Here we face a double problem. There is not only the danger that in the early future the total coal supply of the nation will be grossly insufficient to meet our needs, but there is also the problem of the declining output of large coal while the demand for it keeps up.
In their Report this year, the National Coal Board say that large coal is scarce and has been a declining proportion of the total output. It is also wanted by the railways and for bunkers. They say, as my hon. Friends have said, that the modern inset grates work well with smaller coals. Just look at the figures of large coal: in 1951 63·6 million tons, in 1952 62·2 million, a decline of 1·4 million tons in a single year. In the first 21 weeks of this year there was a decline of

922,000 tons. If this rate is maintained the decline this year will be much greater than in 1952. That means that the housewife cannot get the quantities of large coal she wants. Large coal is urgently required for export and other things, but with a modern efficient appliance the housewife, with much less trouble to herself than with large coal, can get a better result with small coal, and very often using a smaller quantity.
12 midnight.
I want to support what my hon. Friend said about what coal savings would probably be made. We could quite easily standardise our new appliances, to which the Government give their approval, at the 40 per cent. efficiency the Ridley Committee proposed. If they did that there is no doubt, if people had grates of 40 per cent. efficiency, broadly speaking you could get with 19½ cwt. the same heat as you get from 34 cwt. with the old-fashioned stool bottomed grates. Some consumers will use the same fuel and get more heat, and good luck to them, but there are many people who affirm they get more heat but save coal as well.
I do not want to exaggerate what can be done but the 16 million householders who take solid fuel do use between 35 million and 40 million tons a year, and I believe that there is a potential saving here of at least 10 per cent., or something like 3 million or 4 million tons, and I think if all the recommendations of the Ridley Committee were carried out that saving could be made. Much the most important is the recommendation we have embodied in this Clause. I am sure that inspectors of taxes could go far towards achieving our purpose if they were given the instructions the hon. Member for Kidderminster asked for, but much the best way to give the instructions is to insert a Clause like this, and then people will know where they are. Bigger measures are now required, and I hope that the Government will agree to what we now propose.

Mr. Maudling: The hon. Member for Gloucestershire, South (Mr. Crosland), in moving this new Clause, put forward some serious and cogent arguments on the subject of fuel economy, smoke pollution, and the comparative virtue of solid fuel appliances and electrical appliances, and in the course of the discussion we


have had further interesting arguments from other hon. and right hon. Members.
In some ways I feel that to pursue in detail many of the points would be more appropriate to a general debate on the subject of fuel and power than to a debate on the Finance Bill. Indeed, my hon. Friend the Member for Kidderminster (Mr. Nabarro) made the point that it was one thing to talk about encouraging supplies, and quite a separate thing to say it should be done through the medium of the Finance Bill. I am sure we all agree about the desirability of the widespread usé of these modern appliances, but the question here is whether it is a good thing to stimulate their use by the device proposed in the new Clause.
As I have said before during the passage of the Finance Bill, wherever possible it is important to avoid the introduction of new discriminations and new complications into the administration of the Income Tax law. I am sure the hon. Member for Sowerby (Mr. Houghton) will agree with that. Our Income Tax law is complicated enough now, and each new complication introduced makes for more difficulties, while each new discrimination introduces a need for further requirements and further claims to be put forward. I do not think that the Committee should accept any proposal for a new specific discrimination in the Income Tax law without having the very strongest arguments before it for doing so.

Mr. Shackleton: Would the hon. Gentleman not agree that the strongest possible argument for doing something has continually been put forward on the subject?

Mr. Maudling: I was proposing to indicate in the next part of my remarks that I thought the arguments advanced, eloquent as they are, nevertheless are not strong enough to justify this discrimination.
What is being asked is that the normal conception of a maintenance claim should, in the case of these fuel burning appliances, be extended to cover not only maintenance, but also improvements. There is a very clearly established principle on which the calculation of these maintenance and repair claims is based —that is, the distinction between the

replacement of a particular part of a building and an improvement.
My hon. Friend the Member for Kidderminster has referred to the inconsistencies, as he calls them, of the administration of the Income Tax law. I am quite certain that it will always appear to the taxpayer that from time to time there are inconsistencies in this type of administration, because it is very difficult always to be certain about what is a replacement and what is an improvement. That applies as much to industrial equipment as to domestic fuel burning appliances. But the principle is certainly the same, and the Inland Revenue do their best to administer it equally throughout the country. I am certain that my right hon. Friend will consider the evidence of inconsistencies which is sent to him.
The principle, therefore, is that in so far as the task of installing one of these appliances represents the replacement of a worn out grate—replacement, not improvement—it is allowable, but in so far as it represents an improvement as new capital outlay, it is not admissible. That is the principle to which we adhere. It is proposed in the new Clause that we should go further and also set off an element of improvement for Income Tax purposes.
The arguments advanced are three-fold, and perhaps I may deal with them in reverse order. First of all, there is the point about the relative efficiency in coal consumption of electricity burning appliances and solid fuel appliances. Here, I think it is fair to say that whatever we do in particular provisions in the Finance Bill there is still a very substantial discrimination in favour of the solid fuel appliance, which bears no Purchase Tax, against the electric fire, which will continue to bear Purchase Tax at the very heavy rate of 75 per cent. There is already a large discrimination in existence, and, of course, there is the added point that solid fuel appliances are not affected in any way by hire purchase restrictions.

Mr. Noel-Baker: The discrimination is also in favour of the grossly inefficient solid fuel appliances which are still being sold.

Mr. Maudling: I will come to that in a moment. At present, I am dealing


with the comparison between the solid fuel appliance and the electric appliance.
Next there was the point about smoke pollution, to which the right hon. Gentleman also referred and which obviously is of great importance. I am advised by my hon. Friend the Parliamentary Secretary to the Ministry of Fuel and Power, who has been listening to the debate and who, incidentally, later this morning is to visit the fuel research station, where he will recount to the officers and others there what has been said in this discussion, that it is arguable to what extent these new appliances contribute to the prevention of smoke pollution, because they are capable of burning lower grade fuels. I am informed that it is arguable on technical grounds—disputable—to what extent the smoke pollution problem will be eased by these new appliances when compared with the old grates.
Finally, there is the first point which the hon. Member made, the question of the saving of coal. So far as I know, it has never been extensively urged before, and was not urged by the Ridley Committee, that there would be any substantial saving of fuel as a result of the widespread installation of these appliances.
The principal effect, as I understand, of a more extensive use of these domestic fuel appliances is that people get more heat and greater comfort in the home. Hon. Members opposite have quoted their personal experience. My own personal experience of installing one of these appliances is not a saving of fuel, but the fact that one does not have to get up in the morning and light the fire. I believe that that is the main advantage which people draw from them.
Unless it can be shown—and I do not believe it can—that there are substantial fuel benefits to be derived from the appliances, the only benefit will be the greater comfort which people will enjoy in their homes from their use. That, as the hon. Member said, is no doubt a good thing, but not a good reason for introducing a new principle of taxation to encourage people to buy appliances to make them more comfortable.
I will end by informing the Committee that, as a matter of fact, there has been a very substantial increase in the sale of

these appliances. I am informed that the sale of these improved, recognised and certified appliances in the first quarter of this year reached the record total of 630,000, which is more than double the total sales in 1951. That is a good thing, but, on the other hand, I do not think that my right hon. Friend would feel justified in introducing a new discrimination of this kind into the Income Tax structure, with all the objections which would inevitably arise, unless the arguments put forward for it are stronger than those which have been advanced this evening.
I have tried to indicate why, in the Government's opinion, the arguments advanced, important as they are, are not of sufficient weight to lead them to the conclusion that they ought to accept this new Clause with all the difficulties of Income Tax administration to which it would inevitably lead.

Question put, and negatived.

New Clause.—(EXEMPTION OF FUEL USED BY PUBLIC SERVICE VEHICLES.)

As from the first day of September, nineteen hundred and fifty-three, there shall be allowed from the duties of Customs and Excise a rebate of sixpence a gallon on hydro-carbon oils supplied for use in any mechanically-propelled vehicle driven by diesel fuel and licensed as a public service vehicle for the carriage of passengers.—[Mr. Pargiter.]

Brought up, and read the First time.

Mr. G. A. Pargiter: I beg to move, "That the Clause be read a Second time."
This new Clause is drawn rather more narrowly than I should have liked. In fact, there are other Clauses in connection with this matter which I would rather have been moving and upon which I could have developed the arguments with considerably greater effect than on the narrow point to which this is confined. But the fact that it is narrowly drawn gives me encouragement, because the Chancellor will not be able to say that its effects are so widespread that he cannot possibly concede it.
The very narrowness of this Clause may cause the right hon. Gentleman to think that it should be conceded. It would be a very welcome rebate so far as public service vehicles are concerned. The unanimity with which the proceedings of this Committee have so far been


conducted leads me to suppose that the right hon. Gentleman will want to wind them up in a very friendly way by conceding the rather small concession for which we are asking in the Clause.
What is the case for encouraging the use of fuel oils of this kind? The whole development—and it has been a very remarkable development—of the compression ignition engine has been its greater efficiency. The first principle with which we are concerned is that the fuel required has to be purchased abroad, and, in many cases, there is a very large dollar content in it. To the extent that we use petrol instead of fuel oil, the dollar content is proportionately greater, because petrol goes much less far than diesel fuel oil for compression ignition engines.
12.15 a.m.
It is true that approximate efficiency, in terms of mileage, taking a general average, is that the compression ignition engine will give a 50 per cent, greater efficiency than a comparable sized engine using higher grade fuel, such as petrol. That, in itself, ought to be a reason for encouragement to be given for the use of diesel fuel oil as against petrol. A very good case can be made out to get rid of some of the discriminatory charges which the Chancellor makes against fuel altogether for mechanically propelled vehicles, but that is an argument I am not able to pursue at the moment.
On this issue, having regard to the constant struggle which the operators of public service vehicles have to keep down their costs—and fuel represents a very important item in those costs—it would seem to be of general benefit—not to any particular section but to the whole community, for the whole community is, more or less, the travelling public—to be able to do something to lower the cost of transport in such a way that, even if it does not mean an immediate decrease in fares, it may at least mean that there will be no increase. That ought to be a factor which should be regarded as of first-class importance.
The argument could be developed generally that we ought to do everything we can to encourage the use of the compression ignition engine through the use of lower grade fuel so that we are developing the most efficient form of transport. To go back over the history of the matter, so that this type of engine

could be developed it was freed from tax altogether. It was only when successive Chancellors began to see the possibilities of more revenue that it was made subject to taxation, and the very fact that it was brought into the taxation range tended to slow up the development of the compression ignition engine, and it might well have been developed for a lighter type of engine if it had not been for the fact that it lost its priority for tax rebate at a stage of its development which was too early.
I hope the Chancellor will sympathetically consider this matter. I do not think he can argue that it will cost millions of pounds. It will cost a little money, but the counter-balance in value in the cheapening of public transport, and the consequent general benefit to the public, would mean that it would be a most beneficial direction in which the Chancellor could grant a concession, which would be very readily accepted on both sides of the Committee.

Mr. David Jones: I should like to support my hon. Friend the Member for Southall (Mr. Pargiter). Like him, I regret that the other Clauses are not being called, but that is not to say that a case cannot be made out for this one, because its effect on public service vehicles will be very material.
I think that perhaps the situation was better described by "The Times Review of Industry" last March, which stated:
The high rate of the fuel tax has had a serious effect on the earning power of many bus and coach undertakings. Although conversions from trams and trolley buses are continuing, the purchase of new vehicles is being deferred until a new equilibrium can be reached on fares which, even without the new applications for increases, are already high and are discouraging the public from travelling.
Lord Latham, Chairman of the London Transport Executive, said that, last year, there was a rise of £5·9 million in the costs of the London Transport Executive, of which sum £5·5 million was made up of fuel tax and vehicle duty, fuel tax itself costing £4·65 million.
The case is all the stronger when you come to the municipalities who are operating the diesel oil vehicles. Very many of the municipalities are now operating diesel oil services on what were originally tram routes. Within nearly all the private Bills which gave them permission to run electric tramways there


was a clause which called upon municipal authorities to run services at convenient hours and at cheap fares for artisans and mechanics. Many of these authorities, who have turned from trams to diesel oil buses, are having to continue to run these services at comparatively low fares for workmen. The tremendous increase in the tax on fuel has resulted in the cost of operating being substantially higher than the revenue obtained.
This does not apply only to the municipalities. No one could by any stretch of the imagination accuse me of being friendly to the British Electric Traction Company, but I am going to quote Mr. Raymond Birch who, at a meeting of the Yorkshire Traction Company, said:
The operation of our abnormally large number of workmen's services still causes us great concern. Ever since 1942 they have been running at a heavy loss, which last year was at least 3d. per mile, even if based on the average cost of all our services; actually the loss per mile was heavier than this, because workmen's services are the most expensive to run. Workmen's buses often lie idle in pit yards for an hour at a time, and many of them only cover 300 miles per week against the overall average of 800…
The effect of the reduction proposed in the new Clause, while it might not cause a reduction in fares, would certainly prevent many of these operators from having to apply for increased fares in the not distant future. No company or municipality operating public service vehicles can increase their fares without making application to the licensing authority, and the licensing authority has to be satisfied that the costs of operating the service are such as to make the application for the increase justifiable. If a reduction in the taxation of this type of vehicle took place it would obviate the necessity for those applications.
The Chancellor will find no difficulty, I am sure, in accepting this Clause. He has already given complete exemption from this tax for fuel used for agricultural and for industrial purposes and, indeed, when diesel oil is used in railway locomotives and rail cars. If, therefore, tax-free diesel oil can be used in agricultural vehicles, in diesel driven railway locomotives, and railcars, there can be no justification for imposing the tax on diesel fuel for public service vehicles.
As my hon. Friend has pointed out, the Clause is very narrowly drawn. It

will not cost the Chancellor very much, but I am sure it will go a great way towards satisfying the discontent being expressed by thousands of workers in the country who are having to pay increased fares to travel to and from their work because of the additional taxation on public service vehicles. I am sure that the Chancellor wishes to maintain his wage freeze policy in industry. One of the ways he can make a gesture to the industrial worker is to reduce taxation on this particular class of vehicle using diesel oil, and so indicate that it is not his desire that costs should increase.

Mr. Woodrow Wyatt: I should like to support the plea made by my hon. Friends and appeal to the Financial Secretary to accept this very modest proposal. I dare say that he will make all the usual objections— administrative difficulties, a new departure, exempting a particular service, and all that kind of thing. I can see him getting ready to say the customary words in refusing the concession. But, as my hon. Friend the Member for The Hartlepools (Mr. D. Jones) has pointed out, the concession is already made to agricultural and industrial vehicles, and it is not difficult to make the concession to the type of vehicles mentioned in this new Clause. If it can be given to one group it can be given to another under the same sort of arrangement.
When this duty was last increased all the pundits on the other side of the Committee made vehement speeches attacking the increase and pointing out that it would increase the cost of living for working people throughout the country. Two of the most violent denouncers were the present Leader of the House and the present Minister of Works. The Leader of the House, who does not turn up very often late at night, might well have been here tonight because the concession for which we ask is one which is near to his heart. He asked for it very violently in June, 1951. The same applies to the Minister of Works and to many hon. Members opposite.
It is absurd to talk about only having Purchase Tax on luxury items when this duty operates as a Purchase Tax on working people, because public transport is absolutely essential to them. I should


like to illustrate the point by telling the Committee what is happening in Birmingham. The amount of this duty paid by the city transport is £700,000 a year, and over the last few years they have been running at an increasing deficit. The duty more than accounts for that deficit. If it were only reduced by the amount proposed in this new Clause it would save the city's transport £140,000. They have already pending an application for an increase in fares amounting to £300,000, so at least they would be saved nearly half of that and therefore could halve the amount by which they intend to put up their fares if this concession is not made.
I hope that the Financial Secretary will try to do something better than give us the usual administrative objections, that he will be overcome by our arguments and will make the concession.

Mr. Boyd-Carpenter: The hon. Member for Southall (Mr. Pargiter) said, with admirable frankness, that this was not his favourite from the stable of new Clauses. He put it forward with modified rapture, but he raised the corner of the curtain at least on a very important and interesting subject.
As I think the hon. Member knows, I have had the privilege of discussing it during the last two months with a number of representative bodies, including representatives of local authorities who are concerned about its effect upon municipal transport services. There is no doubt that there is a certain amount of interest in the aspects of the matter which he has so very agreeably deployed. But, of course, the trouble here is the dilemma into which one falls, and which the hon. Gentleman did not himself wholly avoid. Either the proposal must be of an extremely expensive nature, or it must involve arbitrary discriminations between particular activities.
This proposal, which I appreciate is not his favourite, appears to involve arbitrary discriminations and, also, not inconsiderable cost. It involves a discrimination in favour of the category of vehicles using diesel fuel, or, to employ the rather disagreeable jargon of those concerned with the industry, "the Derv": and, even inside that, while proposing a concession for passenger vehicles, it does not propose anything for goods vehicles.

Mr. Pargiter: If the Financial Secretary wishes to widen the scope, we should be very happy. We merely seek the smallest concession.

12.30 a.m.

Mr. Boyd-Carpenter: The hon. Member must not tempt me and, in any event, I must keep within the terms of the proposal which is now put forward.
It is a proposal which involves, first of all, quite unjustifiable discrimination inside the Derv group, as against the goods-carrying vehicles. It must be said that that discrimination can be defended by the subject of fares, but I think that there is an exaggeration as to the effect which would result on the level of fares. The industry puts forward a halfpenny on a threepenny fare as the total of the oil duty and it then follows that this particular proposal would only amount to one-tenth of a penny on a threepenny fare. Therefore, only in a certain number of marginal cases could it have any effect on the actual fare extracted. There cannot, therefore, be a sound case on the score that it is undesirable for fares to be increased.
It is only in a few cases which are very neatly balanced that the one-tenth of a penny could have any effect. But there is another consideration, and to that, none of the hon. Members who have spoken have addressed themselves. It is the discrimination inside the passenger carrying vehicle group as between those using Derv, and those using petrol vehicles. It is always important that taxation should be fair; that it should fall equitably on different people, and especially so when those people may be in competition one with the other.
This proposal to grant a rebate on diesel fuel, while leaving an arbitrary duty unchanged, would involve some degree of discrimination against the petrol driven passenger vehicle; and that becomes more important when one recalls that the modern vehicle used in towns is diesel engined, whereas the older fashioned country bus tends to be petrol driven. To that extent, this involves a discrimination between different types of passenger vehicle; a discrimination which might be thought to be somewhat unfair from the point of view of the petrol driven vehicle.
It is a little difficult to justify, on the very general grounds the hon. Gentleman has put forward, this discrimination as between two types of vehicle. One hon. Member pointed out that the diesel driven vehicle is, on the whole, more economical in fuel. That may be an argument, to some extent, for this vehicle, but is equally, of course, an additional reason why a differential duty such as is proposed would operate somewhat harshly against the petrol driven vehicle. Therefore, there is this difficulty. The hon. Gentleman seeks to propose a comparatively limited concession, and, therefore, does involve himself in having to justify an arbitrary discrimination both between passenger and goods vehicles and, amongst passenger vehicles, between those propelled by one fuel and those propelled by another.
In so doing he has not succeeded in keeping the cost down to a figure which can be disregarded. The hon. Member for The Hartlepools referred to this as a rather small concession. It all depends, as the late Dr. Joad would have said, on what one means by "small." It would cost £5¼ million in a full year, a not unsubstantial figure.

Mr. D. Jones: Out of how much?

Mr. Boyd-Carpenter: I fully understand the desire of the interests concerned to secure relief from the burden involved in the fuel tax, and one can understand the natural feeling, particularly of those who happen to operate vehicles of the particular kind the hon. Gentleman has picked out, that this would be from their point of view, a very agreeable concession, if it could be made, but it is really impossible to justify both discrimination of this sort and the not unsubstantial financial element, £5¼ million, involved.
I would suggest to the Committee that while nobody disregards the weight of this burden of taxation on many that has to be supported in these days in which a massive defence programme and a large social service system have to be simultaneously maintained it is really not the right way to approach this problem of the fuel duties, to put forward a discriminatory proposal of this sort. In any event, the cost, I am afraid, makes it quite impossible for my right hon. Friend, in present circumstances, to accept.

Therefore, while I understand the interest in the proposal, and have had reason to be made to understand it from the many discussions I have had with a great many people outside about this sort of proposal, though not, I think, this particular proposal, it is not possible for the Government to accept it.

Mr. Jay: In default of any speech from the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke), who seems to me to be taking slightly more interest in the proceedings than some of his colleagues on the Government benches below the Gangway, I venture to intervene. I think it is a little disappointing, even at this late hour and at this late stage on the Bill, that the Government are not able to make any concession at all. Never have I known a Chancellor who has been so sterile in concessions during the Committee stage of a Finance Bill.
I did think that my hon. Friends advanced at least two strong arguments in favour of this concession. First, they showed, what the Financial Secretary did not contest, that the diesel engine is more efficient in its operation than the ordinary petrol engine. Secondly, they argued— and again the Financial Secretary was not able to dispute the point—that any rise in the cost of public service vehicles tends to be reflected in the cost of living and become an argument, and a valid argument, for higher wage rates. Indeed, it is one of the disadvantages of these fuel taxes that it is exceedingly difficult to raise the tax, for, it may be, good reasons, on the ground of balance of payments, and so on, without creating this effect on public vehicles used by most of the people.
The Financial Secretary tried to argue that the effect would be small, and did not matter. Later he suggested that it was rather a big concession for the Treasury to accept at this stage. Therefore, I think it is clear that it is not a negligible concession. Nevertheless, I think there is some force in the difficulties about discrimination which the Financial Secretary set out. I say that not merely as a result of the speech of the Financial Secretary, but as a result of discussions on this subject which I have had in the past, and of the speeches which I have made in this House which,


I am glad to find after this long interval have converted the hon. Gentleman.
I think there is a case for trying to do something if we can overcome those difficulties. I am not saying that the discrimination could not eventually, by further examination, be overcome; but I am not satisfied that they have been sufficiently overcome for me to advise my hon. Friends to press this matter much further at this time of night. None the less, it is a point which should have been raised, and I regret that the Government have had to continue their record of sterility throughout this Bill.

Question put, and negatived.

Second Schedule agreed to.

Bill reported, with Amendments; as amended, to be considered upon Monday next, and to be printed. [Bill 98.]

Orders of the Day — JET ENGINES (INFORMATION)

Motion made, and Question proposed, "That this House do now adjourn."— [Mr. Studholme.]

12.43 a.m.

Mr. George Wigg: Last November the Central Council of the National Union of Conservative and Unionist Associations met in London, and at that meeting a resolution was proposed by a Conservative councillor from the constituency which I represent in this House. Among the reasons advanced in support of this resolution was an assertion, in the words of the councillor concerned, Councillor Virr:
I was told that when a modification"—
he is referring to modifications to jet engines—
is done in a factory on these engines it is within a month on engines in Russia, and in a very little longer time is also on the engines of MiG fighters in Korea.
That was an astonishing statement. When I talked about it to engineers of high reputation they were quite frank and described it as arrant nonsense; saying that even if drawings of improvements to jet aircraft had been supplied to Russian agents, or the Russian Ambassador, it would have been impossible, from an engineering point of view, for the improvements to be included in any engine in the Soviet Union before a considerable

period had elapsed, perhaps years. But that did not dissuade the conference from accepting the resolution which Councillor Virr moved. It is important to note that among those present was the Prime Minister himself and that these wild allegations were accepted unanimously by the Conservative Party Conference and they proceeded to adopt a resolution which would have done credit to Senator McCarthy himself. The resolution was in the following terms:
This Council calls attention to the growing infiltration of Communist agents in industry and public services and expresses its determination to resist such infiltration at all levels.
There may or may not be any substantial evidence to support that particular resolution, but what is clear is that the reasons given by Councillor Virr and some of his friends have no validity in fact at all.
When my attention was first drawn to the resolution and the allegations made, as I am not an engineer and do not know how much truth was in them, I took the course open to me and put down a Question. They were assertions accepted by the Conservative Party Conference and the Prime Minister and, no doubt, many right hon. Gentlemen opposite who ought to know the facts, but none of them denied the allegations or drew attention to the arrant nonsense, on which they were based. I put down a Question to ascertain whether the statements were true and, if so, what steps the Minister was taking to stop such incidents happening in the future. Unfortunately, the rules of the House made it necessary for me to frame the Question in such a form that it was not absolutely clear on what evidence I relied.
In order that the Minister should know the facts, I wrote to him explaining what it was all about. But, instead of getting a responsible answer from the Minister and receiving the same sort of courtesy as I had extended to him all I got from the Minister was a straight "No" on the question of whether the statement was true.
The Minister went on to repeat a sneer —a disgraceful, untrue and irresponsible sneer which has been made many times from the opposite side of the House in the last few years. It goes back to an event which occurred in 1946 when


55 jet engines, 25 Nenes and 30 Derwents, were sold to Russia. It is said now, in the light of knowledge we now have of the worsening of relations between Russia and the West that perhaps the steps taken in 1946 which led to the sale of these aircraft engines in 1947 should not have been taken. It is a piece of historical nonsense and political dishonesty to try to apply the test of what one would do in 1946 by applying the complete knowledge of 1953.
I am prepared to agree that the late Sir Stafford Cripps and those responsible for the decisions in 1946 did not foresee, and could not foresee, the implications involved in the supply of these jet engines. It was within a year of the end of the war and the world was full of hopes of a peaceful settling down. The engines were off the secret list; they were on the open list.
It is true that they could not be sold without an export licence, but the Government in their wisdom decided to do so. I think that even now it is possible to see that there were considerable arguments in support of the course that was taken. We know now, of course, if we apply the test of knowledge of 1953, that at the end of the war the Russians had overrun the Messerschmidt prototypes. If we had not supplied these engines it is just possible that they might have gone on and developed the Messerschmidt prototypes, and we do not know what the results might have been.

Mr. Julian Snow: Is the hon. Gentleman aware that it was made abundantly clear by the representatives of the aircraft industry to a particular sub-committee of the Estimates Committee, of which the Parliamentary Secretary was a member, that there were no losses of technical secrets by the sale of these engines? It is a thing which has been virtually suppressed by the Press of this country, and in view of the headline in a national newspaper recently which read something like "The cost of selling our jet engines" that fact should be put on record.

The Parliamentary Secretary to the Ministry of Supply (Mr. A. R. W. Low): Could the hon. Gentleman quote the passage in the Report of the Select Committee which refers to this?

Mr. Wigg: I have only half an hour, and I have made several efforts to get the Adjournment. I think I should be allowed to continue my speech. My hon. Friend has anticipated something I wanted to say.
In considering whether one is running a risk in making information available there are two considerations to take into account, and there are differences of opinion on these points. Does one give away too much by allowing plans to be available, or can one take the risk of allowing photographs and handbooks, and so on, to be available, and rely on the fact that the real secret which must be safeguarded at all costs is the "know-how"?
I am not an engineer, but I have gone to people with reputations to lose and they are unanimous that the real secret is the "know-how." It is a fact that the Nene was an obsolete engine. It was on the open list, and it was possible for photographs to be supplied. All the external evidence was open to any air attache in London. What they could not get was the "know-how" and they could not get that even if they got the engine.
If the Government are right in lambasting Labour Ministers we have to probe the argument further. I put some Questions to the Minister of Supply on 18th May asking him the dates upon which certain Nene and Derwent engines were released. On two material facts the Minister gave me false information. He said, for example, that the Derwent IX, which had been released by the present Government in April, 1952, is still on the restricted list, and he also denied the existence of the Derwent X. I have the list which was published by the present Government on 29th January last and which gives particulars of aircraft and engines and shows how they are graded.
On the open list for 29th January. 1953, there is the Derwent IX, which the Minister of Supply inaccurately—and, as I assert, falsely—said was on the restricted list. It is on the open list and the Derwent X, the engine which was so secret it was not mentioned in the list of 29th January, 1952, is shown on the open list on 29th January, 1953. The covering letter I had with this list, which I will make available to the Minister, contains this sentence:
On the open list everything is free for publication except secret military equipment.


So the fact that the Derwent IX and the Derwent X—two of the most secret of engines—are now put on the open list shows conclusively just what there is in the protest of the Minister and some of his friends when they protest about the sale of these engines.
If one accepts, as I am inclined to accept, that the Labour Government and their advisers did not see the full implications and consequences of their action in 1946, what is one to say to the present Minister and his Parliamentary Secretary, and, indeed, to the Prime Minister and the Government, when they carry on in 1953 the same policy which they condemn in 1946? It may be true that to prohibit the sale of the Derwent IX, to put it and the later Nene on the same footing as the Derwent X, would be rather like locking the stable after the horse had been stolen, but at least it would prevent the stealing of the bridle and stirrups and the rest of the equipment.
There is the additional fact that the Government are being forced, as a result of their own policy, to go wholeheartedly into the sale of military equipment. They are laying themselves wide open in the future to the same kind of charges being made against them as they have made, for political reasons, against some of my right hon. Friends. The fact is, as I see it, that even now it is not too late to put these engines back on the restricted list.
If the Parliamentary Secretary, replying on behalf of the Minister of Supply, sincerely believes that the Labour Government were wrong in 1946 I wonder how he has the impudence and audacity to come to the Box tonight and defend the fact that the Derwent IX and the Derwent X and the latter Nenes are on the open list at the present time, particularly the later Derwent, because the knowledge that is available would enable the Russians or anyone else to make a considerable improvement in the aircraft engines they have.
The latter Derwent has developed a 5,000 lb. thrust, and the method by which that is obtained is secret—the most secret of secret information. But, again, let me confess quite frankly, let me be fair to the hon. Gentleman—much fairer than he has been to my right hon. Friends: the fact that we are selling Nene

jets to Pakistan, the fact that much of this information would be available through France and many other countries, is a calculated risk which has to be taken if this country is to continue the armaments industry.
I wish I had more time. I have asked this one simple thing of the Government. I agree that they are in a very difficult position, because to keep the armaments industry going they have to be prepared to sell equipment, some of it secret, some of it near secret, and all that entails a risk. The action of the Minister of Supply, who ought to know better, and of some of his hon. Friends, who simply do not know the truth, is reprehensible; but that is not the point which concerns me. If the Minister of Supply is right and any measure of fault lies with my right hon. Friends, then that fault is a hundred times, a thousand times, a million times greater in the present Government, because at the present time they are continuing exactly the same policy.

Mr. Speaker: Mr. Low.

Mr. Snow: On a point of order. I was challenged by the Minister about the source of my information on evidence to the Select Committee. Am I not to have the opportunity of replying to him. Sir.

Mr. Speaker: There is no point of order in that.

1.0 a.m.

The Parliamentary Secretary to the Ministry of Supply (Mr. A. R. W. Low): I think it would be to the benefit of the House if I tried to reply to the very full and very concise statement which the hon. Member for Dudley (Mr. Wigg) has just made, and I congratulate him on that point. I wish at the outset to thank him for giving me notice in advance of the general line of his speech, but that, I am afraid, will be the end of my thanks.
The hon. Gentleman started by reminding us that he put a Question to my right hon. Friend in April arising out of a statement made by a councillor in his constituency at a meeting of the National Union of Conservative Associations held, not in November as he said, but in March.

Mr. Wigg: I thought I said March.

Mr. Low: I am just trying to get the record right. The councillor did not


move the resolution; he spoke to it. I say that to get the record quite correct.
As the hon. Gentleman said, my right hon. Friend's answer to his Question was a categorical denial of the statement that improvements in jet aircraft carried out in British factories are known and applied in Russia within a month, and, in a little longer time, are also applied to the engines of MiG fighters in Korea. My right hon. Friend categorically denied that, and I should have thought that the denial was exactly what the hon. Gentleman wanted to hear.
The hon. Member put further supplementary questions on that point after my right hon. Friend's categorical denial, and it appeared from those questions that the hon. Gentleman did not really believe the statement from the report which, as he said, he sent to my right hon. Friend. But he did not add that at the end of the report—in fact, at the end of the councillor's statement—the councillor made it quite clear that he was only stating what he had been told, and that he added, at the end of his statement, "This is hearsay." The hon. Gentleman, in his Question to my right hon. Friend, made himself responsible for what was really no more than a hearsay statement.
In his speech just now the hon. Gentleman passed on to the incident of the sale of Nene engines to Russia in 1946. He said that some of my right hon. and hon. Friends were responsible for an irresponsible smear upon the last Government. I will state the position as we now know it, and will then state the facts as they were at the time that the decision was made.
My right hon. Friend told the House on 27th April:
In my opinion, the sale of these engines undoubtedly had the effect of reducing by about two years the technical lead in the development of these engines which we then had over the Russians."—[OFFICIAL REPORT, 27th April, 1953; Vol. 514, c. 1766.]
I confirm that opinion again today. It was estimated that in 1946 we had a lead of about five years over the Russians in the development of jet engines. As a result of this sale of 25 Nenes and 30 Derwents to Russia between December, 1946, and January, 1948, that position was very much changed. We know that in July, 1948, the Russians had a proto-

type of the MiG 15 using the Rolls-Royce Nene engine. By October, 1949, the MiG 15 had reached Russian fighter squadrons, and an almost exact copy of the Rolls-Royce Nene engine was being produced in quantity.
In 1951, the MiG 15, powered with this Nene engine, was in operation in Korea against British Forces and their Allies, and still is. Those are the facts as we know them, and the five-year lead which we had in 1946 had shrunk in 1949 to three years or less in this type of engine. In the meantime, of course, we had developed aero engines along other lines.
I will now refer to events of about that time in 1946. In the spring of 1946, the Russians asked for the sale to them of some Nene and Derwent engines, and also asked for the sale of their manufacturing rights. It was decided that the manufacturing rights should be graded as secret, and should not be sold to the Russians. That, indeed, would have been the greatest folly of all, and there, I think. I have the hon. Gentleman with me.
The issue under discussion today is the sale of the engines themselves, and, of course, from that sale valuable information can be obtained. For a number of months, the necessary export licence was withheld by the Labour Government on security grounds. However, after pressure from the Soviet Government, it was decided in the autumn to authorise the licence. Further licences, bringing the total to 25 Nenes and 30 Derwents, were authorised in the course of 1947. It was not until March, 1948, that the Labour Government saw the full madness of their action, and prevented the further export of aero engines to Russia.
There are, then, to sum up, three chapters to this story. The first chapter starts in the summer of 1946, when sense prevailed and security considerations prevented export licences. The second chapter covers the 18 months from the autumn of 1946 to the spring of 1948, when, I would say, madness supervened and engines were delivered to Russia under export licences. The third chapter, starting in March, 1948, shows that sense had returned and a firm ban was placed on the export of aero engines to Russia.
I know that various explanations of the second chapter have been made by Members of the Labour Government, by the hon. Gentleman and by the hon. Member for Lichfield and Tamworth (Mr. Snow), who intervened just now. I think it was the right hon. Gentleman the Member for Easington (Mr. Shinwell), who was Minister of Fuel and Power at the time of the sale, who argued in the House on 27th July, 1950, that, if we had not provided the Russians with these engines, could it be doubted that they would have been able to obtain all the information they required from sources under their control? But the fact is that they did not. They obtained the information from the Nenes, and produced an almost exact copy of them.
Then, the hon. Gentleman argued— and this has been argued before—that, in the light of our relations with Russia in 1946, it was reasonable to let the engines go and let our development lead be reduced by that amount. The argument was that 1946 was part of the honeymoon period, and that what happened afterwards could not have been foreseen. I profoundly disagree with that argument, and I need only remind the House of the famous Fulton speech which my right hon. Friend the present Prime Minister made in March, 1946. He certainly foresaw the future— [Interruption]. The hon. Gentleman says that that started the trouble, but that was not the view of the late Mr. Ernest Bevin, who was Foreign Secretary of the Labour Government at the time. In addressing this House on 15th September, 1948, he pointed out that the Russians had been pursuing a policy of stirring up civil war as an instrument of policy ever since the end of the war, and that, I think, disposes of the point that has just been made.
Then the hon. Gentleman founded an argument on the fact that these Nene engines were on the open list, but the effect of placing an operational jet aero engine on the open list is that full details of the engine's characteristics and performance may be published, as far as the Government are concerned, but the manufacturing licence aspect of engine manufacture—the drawings, data and "know-how "—would normally remain on the secret list, and I have already referred to the decision taken by the

former Government in July, 1946, that all jet engine manufacturing rights should be classified as secret.
As far as the sales of manufacturing rights are concerned, at present there is not one British jet aero engine designed for operational use of which the manufacturing rights are on the open list. Drawings, manufacturing data and the "know-how" cannot be released by the manufacturers except by permission of the Government. They are, of course, released from time to time to daughter firms and sub-contractors. Nor, as the hon. Gentleman has said himself, does the placing of an aero engine on the open list mean that that engine may be exported to any country.

Mr. Wigg: Mr. Wigg  rose—

Mr. Low: I have one or two more points to make and if I have time at the end I will give way.
The hon. Gentleman went on to make an argument I have seen deployed before in the Press somewhere, that the Nenes diverted the Russians from developing axial flow engines they had got from Germany. So far as I have been able to discover there is no justification at all for that argument that the Russians reduced their efforts on the axial flow engines to concentrate on the Nene. The Russians had an airframe ready for a high-speed engine. They found that engine in a copy of the Rolls-Royce Nene which was superior to any other engine they had. Otherwise, why did they use it?
So far as I can discover there is no justification for arguing that in 1946 our technical experts urged the export of the Nenes and Derwents to Russia to divert the Russians from the German axial flow engines. I have seen no such opinion expressed. The implication of the hon. Gentleman's argument was that the Labour Government would have followed such advice had it been given to them. In my wildest moments I have never accused that Government of such a degree of madness.
The hon. Gentleman charged my right hon. Friend with misleading the House. He has made a mistake. The D notice for the open list, of which I know he has been given a copy, shows he is referring to the experimental numbers whereas my


right hon. Friend was referring to the mark numbers. It was really quite reasonable for us to assume he was referring to the mark numbers. Indeed, it is the general practice because in the very same question that my right hon. Friend was answering, the hon. Gentleman had referred to the Nenes III, IV, V and VI and to the Nene 102, which must have been the mark numbers because the experimental numbers are R.N.I and R.N.2.
Then the hon. Gentleman made his point about the Derwent R.D.10. His

argument was that it was such a revolutionary advance in development over the original Derwent that it should not be—

The Question having been proposed after 10 o'clock on Tuesday evening, and the debate having continued for half an hour, Mr. SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at Thirteen Minutes past One o'Clock a.m.